zhongde waste technology ag annual report 2007

ZhongDe Waste Technology AGAnnual Report 2007

Key financial highlights

Operational data

Order intake 44.351 23.385 90

Order backlog 20.494 7.573 171

Revenues 31.133 18.995 64

Gross profit 21.637 13.383 62

Gross profit margin 69% 70% –

Cost of sales 9.496 5.611 69

EBITDA 18.685 11.942 56

EBITDA margin 60% 63% –

EBIT 18.612 11.903 56

EBIT margin 60% 63% –

Net profit 19.058 8.022 138

Net profit margin 61% 42% –

Earnings per share * ¤1.47 ¤0.62 –

Cash flow data

Cash flow from operating activities 13.874 6.188 124

Cash flow from investing activities (2.954) (110) 2.414

Free cash flow before financing 11.185 6.081 84

Balance sheet data

Total assets 104.536 16.817 522

Property, plant, equipment 887 306 190

Net working capital 95.182 8.390 1.034

Cash and cash equivalents 83.827 9.198 811

Debt 0 681 (100)

Net cash 83.827 9.198 811

Shareholders´ equity 98.629 8.823 1.018

Headcount (as at 31 December 2007) 260 182 43

* computed for comparable purposes only on the basis of 13,000,000 shares

Amounts in k¤ 20062007 Change %

Key

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net profit

shareholder structure

order backlog order intake

Advanced technology for a cleaner environment

the zhongde group is one of the leading suppliers of small and medium-size waste incinerators in china. we design, manufacture and install pyrolytic, grate and rotary kiln waste incinerators for the disposal of solid medical, municipal and industrial waste.

Our focus lies firmly in the development of high quality

technology that fits perfectly with the Chinese market

and the Chinese government’s commitment to protecting

the environment. Our links to the German industry

through our listing on the German Stock Exchange

are reflected in our company name: Zhong – one of the

Chinese words for China and De – an abbreviation of

Germany. Ours is a fusion not just in name: we marry

the high standards of German engineering with Chinese

commitment and in-depth knowledge of the Chinese

market.

Thanks to our innovative approach, we remain flexible

enough to react rapidly to market demands. We are the

only sizeable manufacturer in China with the funding

and technology to undertake build-operate-transfer (BOT)

projects and develop solutions tailored to the Chinese

market. As a result, we do not rely on the import of

equipment or technology.

This technical expertise is instrumental in allowing us

to fulfil our responsibilities to the environment –

responsibilities we take very seriously. Green GDP plays

an important role in business development in China,

combining the enormous growth and business potential

with the government’s staunch support for sustainability.

This includes government backing of incineration in

response to environmental pollution control and renew-

able energy. We are meeting these demands through

groundbreaking projects, research and develop ment and

our knowledge and expertise in the market.

2–3

shareholder information

[007] Letter to our shareholders

[009] Supervisory Board Report

[013] ZhongDe Waste Technology AG

share performance

[014] Highlights 2007

combined group management report

[020] Organisational and legal structure

[022] Economic environment

[023] Business environment

[026] Financial development

[032] R&D

[035] Employees

[036] Risk management

[040] Outlook

[042] Events subsequent to reporting date

[043] Additional disclosures

[045] Report on ZhongDe Waste Technology AG

corporate governance

[048] Corporate Governance Report

[051] Compensation Report

financial statements

[055] Consolidated balance sheet

[056] Consolidated statement of income and expenses

[057] Consolidated statement of changes in equity

[058] Consolidated statement of cash flow

[060] Audit certificate

[062] Notes to the financial statements

[107] Responsibility statement

additional information

[110] Financial calendar

[111] Contact information

[115] Imprint (cover)

Table of contents

Advanced technology for a cleaner environment

shareholder information management report corporate governance financial statements additional information 4–5

[007] Letter to our shareholders[009] Supervisory Board Report[013] ZhongDe Waste Technology AG

share performance[014] Highlights 2007

shareholder information

[page 109–112][page 052–108][page 046–051][page 018–045][page 001–017]

6–7

Dear shareholders,

2007 has been a tremendous year for the ZhongDe

Group. We can look back at our successful listing on

the German Stock Exchange, record breaking revenue

figures and the opportunities created by the Chinese

government’s commitment to Green GDP with a real

sense of achievement.

Central to our success this year was the company listing

on the German Prime Standard. As the first Chinese

company to be listed, this sparked investors’ attention

not only shining the spotlight on the ZhongDe Group

but also highlighting the Chinese market, the waste

management industry and its green credentials as well

as environmental factors in business development in

China.

Funds raised through the IPO allowed us to finance our

expansion plans. Importantly, the IPO also helped us

to establish ZhongDe Group as an international brand,

strengthening our corporate image in the Chinese

waste incinerator market.

In 2007 we achieved €31.1 million in revenue and €19.1

million in net profit, compared to €19 million (revenues)

and €8 million (net profit) in 2006, with gross margins

remaining stable at 69%. The increased revenue can

largely be attributed to increased sales of municipal

waste incinerators.

The shift in the sales mix from 82% medical waste in

2006 to 70% municipal waste in 2007 is in line with

our strategy to grow business in the municipal waste

sector, focusing on small to medium-size incinerators.

This puts us in a strong position to realise our long-term

plan: larger scale incinerators with capacities of more

than 1,000 tonnes per day.

The ZhongDe Group is a strong player in a market

brimming with opportunity. The Chinese government

supports environmental protection and renewable

energy and many municipalities are now looking to

improve their existing waste management facilities.

Landfill, the traditional waste treatment method in

China, is becoming prohibitively expensive as the cost

of land increases. With this in mind, demand for waste

incineration facilities is rising and we see this as the

beginning of the growth in this market.

Zefeng Chen Na Lin

Chairman of the CFO

Management Board (CEO)

Letter to our shareholders

8–9

Dear shareholders,

The first financial year of ZhongDe Waste Technology

AG after its formation and successful initial public

offering ended on 31 December 2007. For the Company,

it was marked by the IPO (initial public offering) of

ZhongDe Waste Technology AG at the Prime Standard

of the Frankfurt Stock Exchange. This made the

company the first Chinese undertaking ever admitted

on the German Prime Standard. Apart from the IPO, in

the last financial year the Company devoted itself to

strengthening its position in the municipal incin erator

markets, entering waste disposal plant operation through

the signing of two BOT agreements, acquiring land

usage rights to build a new production facility to support

expansion plans, continuing its R&D activities and

formalising internal business processes.

supervision of the management board

In accordance with statutory law, the Articles of

Associ a tion, the Rules of Procedure and the German

Corporate Governance Code, the Supervisory Board

has supervised and advised the Management Board

during the first financial year on a regular basis. The

Management Board informed us regularly, extensively

and in a timely manner at the Supervisory Board

meetings as well as with verbal and written reports.

The reports of the Management Board were in

compliance with the guidelines according to section 90

of the German Stock Corporation Act (AktG). We were

provided with information on the Company’s business

policy, business and financial position, profitability and

business planning, including finance, investment and

personnel planning as well as all major decisions and

transactions. The Supervisory Board was involved in all

decisions of fundamental importance at an early stage.

Furthermore, the Chairman of the Supervisory Board

communicated regularly with the Management Board.

Both shared information and opinions. Additionally, the

Supervisory Board was kept informed about the current

business situation, major business transactions and all

decisions of the Management Board as well as business

volume development and business results.

meetings of the supervisory board

The members of the Supervisory Board convened at

two ordinary face-to-face meetings on 21 July 2007 in

Fuzhou, China, and on 20 November 2007 in Hamburg.

The Supervisory Board also held six extraordinary

telephone conferences on 8 May 2007, 16 June 2007,

18 June 2007, 20 June 2007, 28 June 2007 and 4 July 2007.

All members of the Supervisory Board attended all

meetings. Since the Supervisory Board comprised only

three members at the time, it did not constitute any

committees.

The ordinary meetings of the Supervisory Board

explored current business development, the business’s

risk factors and the Company’s strategic direction

as well as the reports presented to the Supervisory

Board in depth. The investment and divestments and

its strategic effects during the reporting period were

deliberated.

Supervisory Board Report

The discussion covered:

business strategy, planning, business development

and the economic situation

preparation of the annual general shareholders’

meeting 2008

approval of the

half-year financial report and

the management report

report for the third quarter and

the management report

business transactions of the Management

Board which required the approval of the

Supervisory Board

the financial calendar

the strategy regarding clinical and municipal

solid waste as well as BOT projects.

The extraordinary meetings of the Supervisory Board

covered the following with regard to the formation of

the Company in 2007 and the IPO:

election of a chairman and a deputy chairman

of the Supervisory Board

election of the members of the Management Board

approval of the IPO and the underwriting agreement

adoption of the Rules of Procedure for the

Supervisory Board and the Management Board

approval of a resolution of the Management Board

regarding the authorised capital increase and

adoption of amended wording of the articles of

association in keeping with changes made

determination of the price range.

All business transactions which required the approval

of the Supervisory Board were closely reviewed.

The Rules of Procedure of the Management Board

and of the Supervisory Board provide a framework

for the Supervisory Board to approve all decisions

of the Management Board with a crucial bearing on

the Company’s financial status, profitability and risk

situation, or any issues not relating to usual business

operations. The business transactions which required

the approval of the Supervisory Board were presented

to the Supervisory Board and, in most instances,

considered in the presence of the Management

Board. The members of the Management Board were

available for further enquiries and all submissions were

approved. No objections were raised regarding the

conduct of the Management Board.

As well as sharing opinions on business development

and the status of the Company, extensive discussions

were held on the planning of finances, investments and

personnel. There were also opportunities to discuss

conflicts of interests although the Supervisory Board is

not aware of any such conflicts.


The “Corporate Governance” of the ZhongDe Group

is reported in a separate chapter of this annual report.

ZongDe Waste Technology AG will complete its

declaration of complience by 6 July 2008.

personnel issues

At close of business on 17 June 2007, Mr. Simon

Eckersley, Mr. Liao Kaizhan and Ms. Li Lu – the initial

members of the Supervisory Board – resigned from

their office in writing. On 18 June 2007, the General

Shareholders’ Meeting elected Mr. Hans-Joachim

Zwarg (Chairman), Mr. Joachim Ronge (Deputy

Chairman) and Mr. Quan Hao to the office of Members

10–11shareholder information management report corporate governance financial statements additional information[page 109–112][page 052–108][page 046–051][page 018–045][page 001–017]

of the Supervisory Board until the expiration of the

General Shareholders’ Meeting which will then ratify

the Management Board and the Supervisory Board for

the financial year 2007. On the same date Mr. Zwarg

was elected Chairman and Mr. Ronge Deputy Chairman

of the Supervisory Board.

financial statements 2007

The (individual) financial statements of the ZhongDe

Group were prepared in accordance with the German

GAAP as provided for in the German Commercial Code

(HGB). The consolidated financial statements of the

ZhongDe Group were prepared in accordance with

International Financial Reporting Standards (IFRSs).

The individual financial statements and the consolidated

financial statements including the combined group

management report were audited by BDO Deutsche

Warentreuhand AG Wirtschaftsprüfungsgesellschaft

and certified without qualification. During the audit, the

following topics received close attention:

completeness of accruals, provisions and liabilities

assets not to be overvalued and liabilities, accruals

and provisions not to be undervalued

cut-off at year end

compliance of the notes to the financial statements

with HGB or IFRS

properness of consolidation

fair presentation of the combined group

management report

risk management

The individual and consolidated financial statements,

the combined group management report, the proposal

of the management board regarding the appropriation

of retained earnings and the auditor’s reports were

submitted to the Supervisory Board in a timely manner.

We are proud to play a part in the development of the ZhongDe business –to guide the Management Board and ensure the best for our shareholders. Hans-Joachim Zwarg, Chairman of the Supervisory Board

The Supervisory Board was also provided with the report

prepared by the Management Board in accordance with

section 312 of the German Stock Corporation Act (AktG).

The aforementioned financial documents were examined

in detail at the annual finan cial statements meeting and

were discussed in the presence of the auditor who

reported on the material results of the audit. The auditor

was also available for questions and could provide

additional information as far as necessary. The

Supervisory Board approved the results of the audit

which contained no objections from the auditor.

Pursuant to section 171 German Stock Corporation

Act (AktG), the Supervisory Board has audited the

individual and consolidated financial statements and

the combined group management report set up by the

Management Board while accounting for the advantages

offered by the accounting policy. Following the outcome

of the audit, the Supervisory Board did not raise any

objections. The Supervisory Board is in complete

agreement with the evaluation by the Management

Board contained in the financial statements and the

combined group management report and, as a result,

adopted the individual and the consolidated financial

statements. Additionally, the Supervisory Board

examined and approved the Management Board’s

proposal regarding the appropriation of retained

earnings.

The ZhongDe Waste Technology AG`s individual

financial statement reveals profits and retained

earnings for the 2007 business year of €3.5 million.

The Supervisory Board seconds the proposal of the

Management Board to distribute €1.95 million to

shareholders.

The Supervisory Board would like to pay tribute to the

efforts of the Board of Management and all employees

that contributed to the strong results in 2007.

Hamburg, 28 April 2008

sgd.

The Supervisory Board

Hans-Joachim Zwarg

Chairman

12–13

The ZhongDe Group enjoyed a strong start to trading

on the Prime Standard segment of the Frankfurt Stock

Exchange on 4 July 2007. Shares were approximately

13.5 times oversubscribed and 15% higher than the

initial offer price. 95.4% of the shares were purchased

by institutional investors in Germany, neighbouring

countries, Great Britain and Hong Kong, with 4.6%

going to private investors.

Following on from this, we have established a robust

price performance for the trading period as a whole.

Despite the volatility of global markets in October and a

general share price downturn in this market segment,

the ZhongDe Group outperformed others in this sector.

Overall we were able to ride above market uncertainties

partly due to strong results in the third quarter.

ZhongDe Waste Technology AG share performance

Our strong price performance was reinforced at the

end of September with the announcement of two major

BOT projects. As part of these projects, the ZhongDe

Group will deliver equipment, sales and operational

income by working in close partnership with the

provincial government.

Backed by a positive outlook for the financial year 2008,

ZhongDe Group stock continues to move in line with the

market, thus putting company shares in a solid position

to profit from future market recovery.

Highlights 2007

strong results

The ZhongDe Group put in a strong performance in

2007. By focusing on the municipal waste incinera-

tion market and recruiting key members to the team,

the company leveraged its position in solid waste

management in China. Sales continued to increase in a

market experiencing huge growth in demand due to the

Chinese government’s environmental policies. Revenue

rose 64%, up from €19 million in 2006 to €31.1 million

in 2007. Growth can mainly be attributed to the rise in

municipal waste incinerator sales. Also during 2007,

we received orders worth €44.4 million, an increase

of 90% on the previous year. The growth in orders and

the associated order backlog can be attributed to our

strategy to focus on municipal waste incinerators

the move towards municipal markets

Small to medium-size incinerators, with capacities

of between 50 and 300 tonnes still accounted for the

lion’s share of the revenue for the ZhongDe Group

in 2007, with most sales going to towns and cities

within China. In 2007, the municipal waste treatment

sector developed at a much faster pace than in previous

years. To take advantage of this, we have expanded

the ZhongDe Group business rapidly, particularly in

our sales and marketing department and the project

engineering team, to meet the increase in order

enquiries. We successfully completed and delivered

eleven orders for municipal waste incinerators during

2007, mostly for second-tier cities in China including

Xiamen, Fuzhou and Guangxi. These cities introduced

waste incineration projects to gradually replace the

landfill in their local waste management systems. As

we continue to expand our sales forces to establish

stronger relationships with regional business partners

in more provinces and cities in coastal areas and we

employ additional human resources to cover inland

areas, we expect to win more contracts in major

Chinese cities establishing ZhongDe Group as the

market leader in this sector.

Leveraging our dominant position in the small to

medium-size incinerator markets placed the ZhongDe

Group in a strong position to capitalise on the growth in

the large scale, municipal waste incinerator business.

14–15shareholder information management report corporate governance financial statements additional information

Apart from Beijing, Shanghai and Shenzhen, more

cities with a sizeable and growing population are

looking to include the installation of scalable incin-

erators (with power generating capacity) in their city

development planning, as well as seeking new methods

for alternative power sources, particularly given high

(and rising) oil and coal prices. This forms part of our

strategy to move to larger incinerators with capacities

of more than 1,000 tonnes per day and is in line with

the Chinese government’s Green GDP plans.

entering the bot business and the signing of two bot agreements

2007 saw the ZhongDe Group take its first steps

towards the successful achievement of its business

strategy in the longer term with the signing of its first

two BOT (build-operate-transfer) contract agreements.

The two BOT projects are located in Shandong Feicheng

and Xihua Henan with capacities of 160 tonnes and

500 tonnes respectively. They will begin operation and

contribute revenue to the group in the second half of

2008 and early 2009.

Once the contracts were signed, we opened satellite

offices to oversee initial development. Work being

carried out to establish the two projects is well on track

and strategically the set-up of these BOT projects can

act as a showcase for ZhongDe Group to demonstrate

our one-stop solutions and capabilities – from design,

provision of technology, manufacturing and construc-

tion of incinerators to managing operation. The projects

not only highlight and promote our project management

experience, they also provide reassurance to our

customers and, importantly, will significantly ease

efforts in sealing future orders.

We are 100% committed to creating shareholder value with a business strategy that focuses on the burgeoning municipal incinerator segment and continues to develop our green credentials. Zefeng Chen, CEO


The size and scale of BOT projects create a stable cash

flow for the ZhongDe Group but require a substantial

initial investment with projects lasting an average

of 30 years. BOT projects mean we receive a waste

disposal fee from the government and are also able to

sell the by-products such as steam hot water and bricks

and even generating power to supply local electricity

plants in the future.

expanding production capacity

The ZhongDe Group acquired new land use rights

close to Beijing in 2007. The land covers approximately

76,000 square metres and we hold the rights to the area

for at least 50 years. This will allow us to build a new

production facility and expand production capacity so

that we can realise our strategic goals of moving into

larger municipal waste incinerators, as well as strength-

ening sales coverage in northern China. The Beijing

plant is expected to begin operations in August of 2008

and is forecasted to contribute revenue in 2009.

a successful ipo gaining brand recognition and creating cooperation opportunities

Another premiere for the ZhongDe Group: in 2007

we were the first Chinese company to be listed on

the German Prime Standard at the Frankfurt Stock

Exchange. The IPO raised funds that allowed us to

finance our plans for growth. It also strengthened

our corporate image in the Chinese waste incinerator

market and highlighted the commitment to the

environment in the Chinese government’s business

development plans. In the run up to the IPO, ZhongDe

Group gained significant media coverage and exposure

at various conferences which placed the company firmly

on the international map. The future looks bright as we

received enquiries from more than 20 leading interna-

tional companies for potential projects not only in China

but also in other countries. We are excited by these

opportunities and will tread carefully to ensure that we

are well prepared to accept the challenges posed by

international expansion.


welcoming new employees – our key assets to success

Some of the funds raised by the IPO also allowed us

to recruit 78 more employees to the ZhongDe Group

in 2007. The new members of our team are skilled,

experienced people working across all areas of the

business. Ultimately, it is our people who will really

enable the ZhongDe Group to achieve its long-term

business goals and we recognise the importance of

their role and the contribution each of our employees

to the success of the business.

breakthroughs in r&d

Our R&D team made some tangible breakthroughs in

2007. We are particularly proud of our achievements

with the Fujian Department of Science and Technology

to develop a selective catalytic reduction flue gas puri-

fication device. Other noteworthy achievements include

our new catalytic oxidation degradation process,

technical advances in handling hazardous waste with

rotary kilns and the development of more efficient incin-

eration processes.

ZhongDe Group took a number of strides forward in

2007, with every step moving the business closer to

achieving its long-term strategic goals. We can look

back with pride on a year in which we have grown the

business while endeavouring to develop breakthrough

technology to help create a cleaner environment.


2007 was an exceptional year for ZhongDe. We will continue to

develop our plans, our technologyand our green capabilities to meet

increasing demand in the future.


[020] Organisational and legal structure[022] Economic environment[023] Business environment[026] Financial development[032] R&D[035] Employees[036] Risk management[040] Outlook[042] Events subsequent to reporting date[043] Additional disclosures[045] Report on ZhongDe Waste Technology AG

management report


In 2007, the ZhongDe Group’s focus was firmly fixed

on two main business segments – incinerators for

municipal solid waste and medical waste.

We saw substantial growth in the municipal waste

incinerator business during the year, so much so

that this segment brought in 70% of our revenue for

2007. This amounts to €21,7 million which represents

eleven manufactured and shipped orders, compared

to €3,4 million or three orders in 2006. With Chinese

government plans requiring towns and cities to

incorporate incineration in their waste management

policies, this generated a range of new enquiries about

our products and services in 2007. As a result, we are

confident that the ZhongDe Group is well placed to

capitalise on growth in this market.

Our major source of revenue in 2007 were small to

medium-size incinerators with waste disposal capacities

of between 50 and 200 tonnes. Our flexible, innovative

way of working means that we constantly review

our technology and products helping us to grow this

segment of the business and develop products for large

incinerator projects. This places us in a prime position

to expand our business and capitalise on government

growth plans in municipal and environmentally-minded

waste management targets.

The medical waste incinerator business was the focus

of our second main segment, accounting for 30% of

revenue in 2007. In terms of sales this is attributable to

21 orders totalling €9,4 million in 2007, as compared

to 34 orders with a total turnover of €15,5 million in

2006. The decline in medical incinerator sales in 2007

was in line with our long-term strategy to gradually

withdraw from this segment. Although the medical

waste management market remains stable, our decision

to move away from this sector in the future is grounded

in our own research, which indicates that this business

sector is becoming saturated.

In the long term, we are looking to bring a number of

BOT (build-operate-transfer) projects to fruition. In

2007 we signed two BOT project agreements and set

up satellite offices to oversee the initial design and con-

struction. Teams at these offices will keep an eye on the

progress of the projects once they are up and running.

Other long-term plans include focusing on specialised

incinerator products for fields such as the aviation

industry and we hope to receive our first order in 2008.

We will add to our manufacturing base in Fujian,

southern China, a new facility in Beijing in October

2008. This takes care of orders in northern China. In

2007 our administrative and support teams were all

based in Fujian where we also placed an emphasis on

growing the sales and marketing team. Four of the

teams focused on the municipal waste segment, one on

international sales and one on medical markets along

with the development of specialised business segments

such as aviation.

The ZhongDe Group is structured as a German holding

group and consists of three consolidated companies.

Following the IPO re-organisation, the capital stock

of the ZhongDe Group amounts to €13 million divided

into 13 million no par bearer shares with a par value

of €1 each. The Hong Kong-based, wholly owned

subsidiary, Chung Hua Environmental Protection

Assets (Holdings) Group Ltd., was acquired during the

year. For further detail please refer to the notes to the

financial statements.

Organisational and legal structure


Our CEO Mr. Zefeng Chen heads up the following

divisions: Human Resources, Administration, Marketing,

Projects, Products and Research & Development. The

marketing division is responsible for municipal and

medical incinerator sales and investment in BOT projects.

The division is divided into six subdivisions, four of which

are responsible for sales and investments in different

regions in China, another has responsibility for inter-

national sales and the last is responsible for medical and

aviation sales.

Mrs. Na Lin, the Company’s CFO, is responsible for

Internal Controlling, Finance and Accounting and Investor

Relations

organisational structure

Human Resources

Administration

Marketing

Project Division

Product Division

Research & Development

Internal Controlling

Finance & Accounting

Investor Relations

legal structure

FengQuan

The Chinese economy continued to forge ahead with

rapid growth in 2007. Hand in hand with this, the infra-

structure in China continued to gain strength bringing

with it improved levels of efficiency. The standard of

living also continued its upward trend.

Preliminary estimates indicate that Chinese GDP for

2007 increased by 11.4% – the fifth successive year

the economy has achieved growth of more than 10%.

Value-added in primary industry increased 3.7%, in the

secondary industry by 13.4% and the tertiary industry

by 11.4%. The growth of our business reflects these

positive figures with total sales increasing by 64% and

a substantial increase in the number of enquiries as a

result of the government’s environmental plans.

Production in industrial businesses increased

rapidly, generating a huge improvement on economic

returns. Value-added was up 18.5% on forecast in

this area. This had a particular impact on shareholder

enterprises, which saw an increase of 20.6%, as well

as businesses backed by foreign investors, which rose

by 17.5%. In line with this, sales were up 98.1% on

forecast. Investments in fixed assets also grew rapidly

with year-on-year growth of 24.8%. Total investment in

real estate development grew by 30.2%.

Foreign investment growth continued in 2007, rising by

13.6%, and foreign trade also saw a rapid increase with

growth of 23.5%. By the end of 2007 Chinese foreign

exchange reserves were up more than 43.3% on the

previous year.

Per capita disposable income increased in 2007, rising

by 17.2% within the urban population and 15.4% in

rural communities. Around 200,000 more people were

employed in urban areas than in 2006 which saw unem-

ployment decrease to 4%. Total retail sales increased

by 16.8% in 2007 and the CPI grew by 4.8%. Higher

prices for food and housing were the main drivers

behind the increase in overall levels.

All in all, 2007 was a good year for the Chinese

economy and also a good year for the ZhongDe Group.

Economic factors point to continued overall growth in

the economy and our plans for developing the ZhongDe

Group business leave us confident of success in the

coming years.

Economic environment

22–23

The environmental protection industry is emerging as

one of the principle elements of China’s economy. And

the government sees its development as a priority.

The industry is growing at a rapid pace, approximately

10% per year. At the end of 2001 the annual production

value of the environmental protection industry had

reached RMB 108 billion, with annual manufacturing

capacity and production equipment, or product, value

reaching RMB 30 billion. In 2005 the gross output

reached RMB 200 billion, including RMB 55 billion

from products, RMB 95 billion thanks to the efficient

use of all available resources, and RMB 50 billion from

environmental services. (Source: Municipal Waste

Disposal Planning and Development Report)

2008 looks to be a critical year, with the Chinese

government investing an estimated RMB 1,400 billion in

environmental protection. Investments in the industry

are increasing at a rate of 18% per year and in the

mid-term the annual output value of China’s environ-

mental protection industry is expected to exceed

RMB 880 billion.

A vast country, with a population of 1.3 billon, China

has more than 880 cities with a population more than

600,000. The accumulated waste from these cities is

approximately 6 billion tonnes with domestic waste

increasing at a rate of 8-10% a year. And municipal

waste disposal facilities are unable to keep up with this

pace.

There are four options for disposing of waste: exposed

stacking, sanitary landfill, thermophilic composting and

incineration. Of these, incineration is the most viable

option with the smallest footprint. It maximises waste

reduction and most efficiently leverages the resources

that the process needs. The Chinese government and

local governments invest RMB 30 billion a year in waste

disposal, 50% of which goes towards the construction

of new incineration plants.

By encouraging the generation of power and heat as

by-products of waste incineration and landfill gases

China has made great strides in disposing of municipal

and rural waste in an environmentally friendly way.

In addition, the Chinese government offers business

income tax deductions and exemption policies for

energy-saving projects, environmental protection

projects and investments in special equipment. It

has also improved the preferential tax policies for

businesses using all the resources available to them to

efficiently dispose of waste and old materials, as well

as supported companies developing new and renewable

energies. All of these efforts will play a key role in the

growth of waste disposal enterprises.

The Chinese government has stated that 31 provincial

hazardous waste centres and 300 municipal medical

waste centres need to be built. Over the next ten

years, around 800 refuse disposal plants will be built

in coastal cities and towns with a daily processing

capacity of between 50 and 200 tonnes. The State

Environmental Protection Administration also plans to

build between seven and nine large hazardous waste

plants across the country. Efforts will be focused on

developing large scale municipal waste equipment

while for large or medium-size municipal waste incin-

erators the BOT approach can be adopted to bring

municipal waste disposal to the market.

This all points to promising market conditions for the

waste incineration industry. It is estimated that by 2010

the turnover of China’s waste disposal industry will

reach RMB 250 billion as environmental and economic

policies continue to develop hand in hand.

Business environment


As a reflection of these policies and forecasts, demand

for technology that lays eco-friendly groundwork for

ways to dispose of solid waste is set to grow. And

this places ZhongDe in an excellent position to react

positively to these plans and expand and develop our

business.

This is reflected in our 2007 sales figures. Sales totalled

€31.1 million in 2007, an increase of 64% on the

previous year. The increase in sales is largely attribut-

able to the Chinese government’s emphasis on envi-

ronmental and energy saving issues, tasking provincial

and city authorities to improve energy saving and

environmental procedures and setting benchmarks for

improvement.

The number and type of orders our customers placed

with us in 2007 illustrate that we are building a strong

business and give us great confidence in our plans for

the future. Our order book for 2007 included orders

worth more than €44.4 million, an increase of 90%

compared to 2006, with an increasing number of orders

from municipal waste customers.

These plans are the probable main drivers behind the

increasing amount of enquiries we received this year.

This is good news for our business and our plans: it

indicates that demand for our products will continue

to grow and strengthens support for our strategy to

develop larger scale incinerators. Moreover, it gives

our R&D plans an extra boost to galvanise our technical

expertise and produce products that help to create a

cleaner environment.


Financial development

Against the backdrop of Chinese GDP growth, the

market for incinerators continued to boom. ZhongDe

Group sales rose strongly in the year under review.

Sales revenues increased by €12.1 million or 64% in

2007 to €31.1 million. This revenue growth was a direct

reflection of our shift in emphasis internally to focus

on the rising demand for municipal waste incinerators

which accounted for 70% of sales in 2007.

income of waste incinerators sold by segments

Medical waste incinerator

Units sold 21 24 (13)

Revenues 9,441 15,543 (39)

Gross profit 7,326 11,267 (35)

Municipal solid waste incinerator

Units sold 11 3 267

Revenues 21,692 3,452 528

Gross profit 14,309 2,117 576


medical waste incinerators

Demand in the medical waste incinerators sector is

still considered to be stable in 2007, not withstanding

the limited potential for huge growth in this market.

However, in 2007, the income from medical waste incin-

erators sold in this sector declined from €15.5 million

to €9.4 million.

incinerators specifically for disposal of urban household waste

incinerators specifically for disposal of medical waste


This is to address the ZhongDe Group’s strategy to

capture the municipal waste incinerators market and

more of our current production capacity. We also

assigned technicians involved in project engineering to

develop future orders of municipal waste incinerators.

During the year, the medical waste incinerators that

were sold still focused on a daily processing capacity

of 3 to 8 tonnes. Their average selling prices remained

stable when compared to the previous year.

municipal solid waste incinerators

Strong demand in this sector is fuelled by the govern-

ment’s policy of gradually charging a waste collection

fee to citizens in certain cities as well as introducing

local and foreign investors to BOT projects constructing

municipal waste disposal plants. The ZhongDe Group

has expanded the sales and marketing team rapidly

and divided into four departments in order to respond

to four major groups of Chinese provinces. We adopt a

more detailed approach in providing the government

and the operator a one-stop solution from analysing

the waste content to designing functions and technical

feasibility studies, planning construction, estimating

capacity and building equipment and structures.

Thanks to our service and product quality, sales of

municipal waste incinerators in 2007 represented the

majority of the Company’s revenue sources. Sales of this

sector increased from a ratio of 18% in 2006 to 70% in

2007. In absolute value, sales of this sector increased

by more than five times, and daily production capacities

mainly lie between 50 and 200 tonnes. The ZhongDe

Group is very optimistic about the development of this

sector. Continuing to build our sales network while

taking advantage of our Germany listing position as

well as our technology, we hope to reap the benefit

of growing momentum in the market and ultimately

outperform market growth.

order intake and backlog reflect a strong market demand

In the financial year 2007, order intake was at our

highest ever at €44.4 million. This was a substantial

rise of €21 million versus 2006, or 90%, directly linked

to our strategic plan, focusing on municipal waste incin-

erators, especially models LCH-200, LCH 150 and LCH

100 which have higher disposal capacities. Revenues from

the municipal sector rose by 528% to €21.7 million,

and the corresponding profit for municipal incinerators

went up by 576%.

During the same period, revenues from medical incin-

erators, which has a much lower average selling price

per unit when compared to municipal incinerators, went

down in line with our strategy to move away from this

segment, to €9.4 million, or by 39%.

As of 31 December 2007, the ZhongDe Group’s backlog

amounted to €20.5 million, exceeding the figure for

2006 by €12.9 million or 171%. This is in line with

our expectations and reflects the surge in interest

for advanced incinerator technology which can be

attributed to the Chinese government’s commitment to

its environmental policies. As a result of these plans,

we expect interest to continue into 2008 and beyond.


earning development

Gross profits in 2007 increased substantially, by

€8.3 million or 62% to €21.6 million. This was reflected

in EBITDA which rose 56% in 2007 to €18.7 million

versus €11.9 million in 2006 and EBIT which also

rose by 56% to €18.6 million, a margin of 60%. The

increase in revenue, gross margin and EBITDA and

EBIT show the same trend which demonstrated two

things: it showed that the company healthily expanded

its top line through market exploration and that the

capital expenditure and expense level have been kept

well in check. Annual net profit increased to €19.1

million in 2007 (2006: €8 million) – more than doubling

the profit for the period (change: 138%). The net profit

margin rose by 19% from 42% in 2006 to 61% in

2007. The increased and high net profit margin is a

result of the full tax exempt status granted by the China

government for our Chinese main operating subsidiary.

Last year, the company was still subject to a PRC profit

tax of 33%.

profitability

In 2007, our group gross margin remained strong at

69% (2006: 70%). The increase in percentage of sales

in municipal waste incinerators, which is considered

to be a lower margin sector between the two areas, did

not drop significantly overall because we were able to

bargain for a higher margin in municipal waste sectors.

The gross margin of medical incinerators has also

seen an increase – achieving an average of 78% while

for municipal waste incinerators 66% were achieved.

Notwithstanding the fact that an increasing focus on

municipal waste incinerators may lower the ZhongDe

Group’s margin, we should make every effort to commit

to this market and capture the growing momentum for

the company.

Both the EBITDA and EBIT margins of the company

slightly declined from 63% in 2006 to 60% in 2007.

The reduction is mainly attributable to certain IPO

expenses, such as travelling and accommodation,

incurred during the second half of 2007. Aside from the

above, our selling, distribution, administrative and R&D

expenses all grew at the same level when compared to

the previous year.

The net profit margin rose by 19 percentage points

from 42% in 2006 to 61% in 2007. The increased and

high net profit margin is a result of the full tax exempt

status granted by the China government for our Chinese

subsidiaries. Last year, the company was still subject to

a PRC profit tax of 33%.

Order intake 44,351 23,385 90

Ordner backlog 20,494 7,573 171



interest income

The ZhongDe Group saw a significant increase in

income of k€933.1 in 2007 (compared to k€16.2 in

2006). The increase is mainly attributed to greater

funds raised from our IPO – most of which are still

deposited in the bank and in the name of our holding

company and in our PRC subsidiary. Funds are also still

awaiting transfer to the projects (such as Beijing plants

and BOT projects) upon the final set up procedures at

the beginning of 2008.

summary of profit earning development

The ZhongDe Group successfully launched its strategy

to focus on municipal waste incinerator sales in 2007

which generated a record revenue for the group with

high and stable margin, notwithstanding a decrease in

medical sector sales. The overall expenses are stable

with more of other operating expense-related to the

IPO; yet most of these effects were cancelled out by

additional interest income of IPO proceeds. Addition-

ally, the PRC subsidiary was granted tax exemption in

2007 which ultimately benefited the overall net profit

margin.

equipment, construction in progress and intangible assets

In keeping with the growth in business and the

increased order backlog in 2007, equipment and con-

struction in progress rose to €1 million. Assets relating

to plant, property and equipment rose 105% in 2007

to k€887. Construction in progress for the planned

subsidiary in Beijing accounts for k€149 of this.

Sales 31,133 18,995 64

Costs of goods sold 9,496 5,611 69

Gross profit 21,637 13,383 62

Selling and distribution expenses 1,238 735 68

Administrative expenses 680 377 80

Research and development expenses 266 203 31

Other operating expense/(Income) 841 165 409

Profit from operations 18,612 11,903 56

Finance income 933 16 5,648

Finance expenses 29 50 1,754

Profit before income tax 19,517 11,869 64

Income tax 458 3,847 (88)

Net profit 19,058 8,022 138



The increase in intangible assets represents the

purchase of the land use right for the Beijing plants.

This land use right provides our Beijing plant with a

50-year term of operation. With our Beijing subsidiary

already established, the plant will start to speed up its

construction at the beginning of 2008.

The Beijing plant is considered to be one of our most

important strategic and valuable assets, to support

future planning to strengthen our exposure to the

northern part of China. After setting up this plant, our

incinerators’ production capacity will be considered

one of the biggest in China. And since the Beijing plant

has already reserved surplus land for our second phase

of expansion, management is very confident that the

company can leverage this capacity to cover both the

Chinese and international markets.

current assets and cash position

The 64% increase in our revenue enlarged our

production scales and also our inventories level

(€2.6 million in 2007, compared to k€770 in 2006), in

particular the finished goods. Inventories represent raw

materials such as steel and electrical components as

well as work-in-progress of semi-produced equipment

and finished goods of undelivered equipment.

The rise in trade receivables to €14.2 million also

reflects how highly the revenue level has risen.

The great increase in the trade receivable level was

triggered by several large size contracts delivered in

the last quarter. We consider all of our current trade

receivables to be current. Next year – as the company

will be accelerating production and cash receipts with

higher sales volume – we expect to improve our debtor

turnover to a reasonable level, one comparable to the

industrial benchmark. In short, the growth spurts of

the debtor level do not matter; our management is still

considered a ‘low risk’ of doubtful debt collection since

most of our equipment operates as public facilities

under government contract from the operators and,

based on management experience, they have an

excellent credit record.

The company banked €83.8 million in cash at the year’s

end (2006: €9.2 million). The IPO managed to raise

€75 million for the ZhongDe Group and these proceeds

will be used – in keeping with the IPO plans – for

various purposes: nearly €13 million for setting up

the Beijing plant, nearly €41 million to enter six BOT

projects, and the remainder for setting up the R&D

centre and financing the working capital of expanded

operation scales.

current liabilities and other payables and accruals

Short term loans and amounts due to related parties

were paid back in the year under review with minor

remainders. Overall current liabilities were down from

€8 million in 2006 (47.5%) to €5.9 million in 2007, or

5.7%. Current liabilities mainly represent the other

payables which included the advance from customers

and accrued expense which are increased in line with

the expansion of the operation.


cash flow

Almost all accounts receivable overdue had been paid

by 31 December 2007. Cash flow from operating

activities rose by 107% to €13.2 million. There was

strong growth in cash and cash equivalents in 2007,

mainly due to net cash flow from operating and

financing activities. The IPO process generated net

capital of €68.7 million, taking into account charges of

€6.3 million.

Cash flow from investment activities mainly represented

the acquisition of the land for our Beijing plant and

further investment will be incurred on the construc-

tion site in the coming months. More equipment will

be purchased to establish the Beijing plant in order to

ensure this will be ready to use by the end of this year.

Cash equivalents rose to €83.8 million in 2007, with

capital/statutory reserves standing at €73.1 million.

Total net assets on 31 December 2007 stood at

€104.5 million, a rise of 522%.

finance management

Having raised funds during the IPO, the Company

repaid all of the outstanding bank loans near the

close of 2007. The ZhongDe Group is debt-free as of

the balance sheet’s date. Current internal funding

is expected to meet next year’s normal operation

requirement. If additional funding is required, the

company may turn to the bank for financing. Since

environmental protection is a highly supported industry

in China (and although no dedicated banking facilities

exist at the moment), the company has been approached

by several major banks in China for potential

cooperation. Management believes debt financing will

be a preferable option to strengthen our fund base to

invest additional capital expenditure and in potential

BOT projects further down the road.


At the ZhongDe Group we place great emphasis on

our R&D activities, important for maintaining the edge

on the competition. Passionate about innovation and

the environment, we throw our full weight behind the

development of new technology that helps to create a

cleaner environment. We are already leading the way in

dioxin emission standards.

More than 10% of our employees are busy working in

our R&D department to create new products that answer

our demanding needs. Our researchers and developers

share our passions. 2007 was a fruitful year for the

team and one we can all be justifiably proud of.

We are supported in our research into purification

technology for flue gas generated by incinerators by the

Department of Science and Technology of the province

of Fujian. This key project was included in the govern-

ment’s sustainability plans and we were delighted to

play a part in it. As a result of this work, we developed a

selective catalytic reduction flue gas purification device.

Its application in the waste management process has

been a huge success, strengthening our technological

prowess in treating flue gas generated by incinerators.

The ZhongDe Group is the owner of the intellectual

property for this innovative new device.

We invested a considerable amount of resource in

researching new processes for medical waste to

meet the new requirements laid down by the Chinese

government. This also applies to aviation waste, a

business segment which falls into our longer term

plans. And in response to the issue of dioxin emissions

from waste incinerators, we developed a catalytic

oxidation degradation process by creating a matching

dioxin catalyst based on our own research and pre-

existing national patents.

Our technology department carried out comprehensive

analysis and computer simulations to develop a rationa-

lised and optimised parameter system to enhance the

efficiency of waste management systems. This research

will help the technical development of the ability of

rotary kilns’ to handle dangerous waste, such as oxygen

content and mixing gas and solid waste.

We also upgraded the technical specifications of our

small and medium-size domestic waste incinerators. As

well as creating a more efficient incineration process,

new processes and equipment led to a cleaner process

that is better at controlling the release of polluting

dioxins into the environment.

Of prime importance to us is our ongoing research

into methods for gauging and reducing the adverse

effect of incinerators on the environment. Not only do

our products comply with Chinese national emissions

thresholds, they actually outperform them. Performance

also matches with current European standards. The

current threshold value for dioxin emission in China

are higher than in Europe by a factor of five to one, but

China is obliged to match European standards by 2010.

This is no cause for concern for the ZhongDe Group.

R&D development

34–35

We were extremely pleased to be able to use some of

the funds generated by the IPO in July 2007 to welcome

78 new employees to the ZhongDe Group, increasing

the company headcount by 40%. Our new recruits

play an important part in our plans for developing the

sales, technology and project construction areas of our

business.

Topping our list of skills and experience to bring on

board in 2007 were experts in technology and project

construction, R&D specialists, production and project

construction people, senior sales and marketing

managers and experienced salespeople.

Using an open recruitment process, we successfully

attracted the members of staff we required to meet

these needs, specifically in our sales and marketing

teams and the technical and engineering side of our

business. 80% of people we recruited in 2007 hold a

university degree with more than one third of those

people joining our sales and marketing teams.

We were delighted to welcome some key players to

the ZhongDe Group in 2007 who will have a particular

influence on the positive development of business.

This includes Mr. Chun Yang Jin who heads up our

R&D and technology business. Mr. Jin’s role as CTO

will have a particular bearing on how we develop our

products and their efficiency, and achieve our environ-

mental and renewable energy goals. Mr. Jin, an expert

in environmental engineering with more than ten years

of experience in incinerator technology and waste

treatment in China, joined us from the China Environ-

mental Protection Bureau.

All in all, we were also pleased to welcome 27 new

members of staff to sales and marketing and 16 highly

skilled people to engineering and construction.

In welcoming all the new members of our team to the

ZhongDe Group in 2007, we have gained a tremendous

amount of knowledge, talent and expertise which will

help us to move our business forward and proactively

address developments in the economic and business

environment. We recognise the efforts of all of our

employees and the critical role each one makes to our

business by placing a real emphasis on supporting our

people.

We do this by

ensuring our teams are up to date with the latest

industry knowledge and technical expertise

organising regular internal training sessions and

offering opportunities to attend external training

sessions

paying pension premiums, medical insurance,

housing funds, unemployment insurance,

work-related injury insurance and maternity cover

Employees

Employees by function (as at 31 December 2007)

General economic risks: the major risks to which the

ZhongDe Group may be exposed in conjunction with its

main Chinese business activities are:

associated and business risks

Reductions in Chinese spending on waste management

would pose a risk to sales. This could result from

reductions in subsidies granted by the PRC government

to customers served by the ZhongDe Group as subsidy

levels influence the propensity to buy medical waste

incinerators. Potential risks also include government

bodies favouring domestically-owned suppliers.

Risk-reducing activities to counteract any such moves

include maintaining already strong ties with public

bodies.

regulatory and licensing risks and opportunities

Risks could arise if the ZhongDe Group were not able

to maintain and/or obtain necessary approvals and

licenses from PRC authorities to carry out our business.

It therefore remains essential to keep abreast of

statutory developments as being unable to cope with

future legislation on environmental protection and

solid waste disposal could adversely affect the Group’s

business.

Our customers are also subject to environmental

laws and regulations and this could pose risks if they

demand recourse or compensation in the event of

breaches of such laws or regulations.

The ZhongDe Group’s right to use intellectual property

could expire or be subject to infringement claims.

The PRC legal system and local taxation laws contain

inherent uncertainties and inconsistencies; the tax

status of the ZhongDe Group or tax legislation or its

interpretation might change.

sales and purchasing risks and opportunities

The continued strong sales growth of the Group

depends on its ability to secure new orders for the

construction of solid waste incinerators. The level of

competition could intensify if new domestic or interna-

tional suppliers enter the market. We reduce the risk of

losing contracts to competitors through the recruitment

of professional sales and marketing staff and reducing

long-term dependence on the Chinese market by

building a dedicated international sales team.

Rises in purchasing costs or a decline in prices would

pose a threat to the ZhongDe Group’s profitability. The

construction of solid waste incinerators necessitates

strong relationships with the suppliers of specialist

components and materials and we regularly evaluate

our dependence on each source and the merits of

alternative suppliers.

financial risks and other risks and opportunities

The future strategy to focus on BOT projects exposes

the ZhongDe Group to additional finance and

operational risks.

ZhongDe Group revenues are generated primarily in

RMB and shifts in foreign currency exchange rates

could pose financial disadvantages with a resulting

Risk management

negative impact on dividends. As a holding company,

our liquidity depends on maintaining immediate access

to liquid funds at the operating subsidiary in China.

SAFE (State Administration of Foreign Exchange)

regulations relating to offshore investments by PRC

residents or passport holders may adversely affect

ZhongDe Group’s business operations and financing

alternatives.

Undetected product defects may lead to increased

costs, exposure to liability claims and a negative

impact on the market acceptance of ZhongDe Group

products and technologies. The recruitment of skilled

and experienced people in all areas of the business will

remain central to our ongoing measures to enhance

quality and standards. Nevertheless, human resource

risks could arise from a loss of expertise caused by a

fluctuation of qualified personnel, or from insufficiently

qualified employees with a lack of commitment to

service.

Most of the risks mentioned above relate to the general

business environment in China. We are fully conscious

of these risks, and will continue to observe develop-

ments in order to react immediately to any indications

of changes that may affect future ZhongDe Group

business.

In view of the long-term developments and expectations

regarding incinerator production, sales, high profit

margins and the strong demand in China for incinera-

tion plants to answer waste and pollution requirements,

we regard the current level of risk facing the ZhongDe

Group as low. Our incinerators already enjoy a strong

reputation due to the well adapted, uncomplex techno logy

involved. Most of our customers are city government-

related bodies who demonstrate a low risk of defaulting

on payment. Following the IPO, ZhongDe Group equity

levels have been high. Our high levels of liquidity

provide a solid basis for expanding into the construc-

tion of complete waste incineration plants either in

conjunction with BT projects (build-transfer) or BOT

projects (build-own-transfer, whereby the ZhongDe

Group also operates the plant). For the time being, our

operating activities only cover mainland China.

risk and opportunity management

Risks to the business of an internal and external nature

are identified regularly as part of risk management

procedures with the aim of taking appropriate counter-

measures as soon as possible.

Our business relies on solid experience, high product

quality and strong relationships with existing and

potential clients. As the ZhongDe Group is still

relatively small, top management is involved directly

in all major projects and activities. To remain close

to business developments we regularly conduct

gross margin analyses, detailed project accounting,

order entry controls and the progression of accounts

receivable. Monthly financial reporting is a core tool in

the management of our business.

As well as investing in BT and BOT projects, we

are currently constructing new production facilities

just outside Beijing. The ZhongDe Group remains

conscious of the fact that these investments will require

more detailed return of investment calculations and

project management. To answer these requirements,

we are recruiting additional personnel and highly

qualified managers. We will also build an internal

audit department to support the necessary processes.

Furthermore, we are in the process of establishing

38–39

internal control systems and implement improvements.

As the ZhongDe Group has enjoyed sustained business

growth from year to year, cash management will remain

a high priority within the Group as a whole and within

individual companies. We are also currently developing

an enhanced cash-forecasting system.

We will continue to invest in R&D as part of our ongoing

commitment to the manufacture of state-of-the-art

incinerators. Quality control will remain a high priority

as a guarantee of our strong reputation.

As long as our business centres on mainland China,

there should be no currency effects on our operating

business. However, as the ZhongDe Group will finance

our activities in the near future, we will remain vigilant

of currency effects when transferring money from

Germany to China. Currency effects will affect balance

sheet translation differences rather than the profit and

loss statement.

During the IPO process, we conducted a detailed

assessment of existing and potential risks to the

ZhongDe Group, as outlined above. We are committed

to communicating these risks openly within the

Group, updating our assessment of developments and

constantly improving planning and control systems to

safeguard the high degree of transparency relating to

all internal and external risks.

shareholder information management report corporate governance financial statements additional information[page 109–112][page 052–108][page 046–051][page 018–045][page 001–017]

Government reforms have turned the Chinese economy

around in recent years, helping to turn China into the

world’s fourth largest economy based on GDP.

Industries across the board saw a rise in productivity in

2007, from agriculture to manufacturing, pointing to a

continued buoyant economy in China over the coming

years. Higher employment rates, an improved standard

of living and more disposable income means many

consumers have more money in their pockets, so retail

spending has increased on everything from cars to

cosmetics, electronics to sports equipment.

Pushing ahead with its Green GDP plans, the Chinese

government is placing an emphasis on developing

waste incineration that also has the ability to generate

electricity and supply heat, along with a focus on

ways to utilise landfill gas to generate electricity.

With the long-term aim of increasing the proportion of

renewable energy from 1% in 2007 to 16% in 2016,

these measures are bound to have a positive impact on

the waste technology industry. And this in turn creates

huge potential for us to develop and grow the ZhongDe

Group.

We continually strive to build on our expertise, advance

our technology and improve the effects of waste

disposal on the environment. New developments in our

technology and product range go hand in hand with

government plans as we begin to build our first plant

that combines waste incineration and renewable energy

at Datong in 2008.

As well as its emphasis on the development of waste

incineration methods, the government is introducing

preferential tax policies for companies working on

new energy resources and renewable energy. The

aim: to actively encourage research and development

in these areas. The government is also creating

corporate income tax credits for companies that invest

in energy conservation and environmental protection

projects. The program also includes VAT credits for

companies investing in equipment that helps to reduce

emissions. Again, the potential for the ZhongDe Group

is enormous.

Our plans for the future also include the establishment

of a research institute, the aim of which is to develop

and support our technology, recruit and train skilled,

experienced staff, establish partnerships and collabora-

tions with other leading institutions and develop our

competitive strengths. We expect to start work on the

institute in 2008 and it should be up and running within

three to six years.

These plans will help us build our core competen-

cies and underpin the long-term development of the

ZhongDe Group. Institute projects will help us replace

our current products and finalise new product designs

according to international standards – in particular

core technologies for developing large incinerators.

They will also promote work with professional design

and engineering construction companies on the

development of independent design capabilities.

In terms of financial development, we expect revenues

from the financial year 2008 will achieve €50 million

with a net profit margin above 45%. With the expected

contribution of revenue from selling larger equipment

(such as the Datong project) and the further strategic

objective to focus on larger projects, the gross margin

of the Company is expected to come in slightly lower,

at 55%. Though the actual development of our 2008

results is depending on production and delivery

scheduling and may vary from our forecasts we are still

optimistic of our overall future revenue growth in the

Outlook

40–41

next two years. For 2009 we expect the ZhongDe Group

to enjoy the same encouraging pace of growth with the

production of larger orders being gradually completed

and delivered to generate income. With the full tax

exemption the Company receives in 2008, the net profit

margin will maintain a reasonable level of around 45%.

With a new tax level of 50% coming into play in 2009,

for three years, this is likely to have some impact on the

net profit margin.

We understand the future will be challenging and our

success strongly relies on our risk awareness and –

more importantly – how the company should change

the way it addresses the rapidly changing business

environment. Though the ZhongDe Group has yet

to establish a solid brand in the Chinese market, by

tapping into our expertise in our local marketing team

and extensive sales network, we see plenty of opportu-

nities in China to develop the environmental protection

business. And our management is driven to transform

the ZhongDe Group, a key player of this sector in China.

We are perfectly placed to leverage the opportuni-

ties created by the Green GDP plans. They lay the

foundations for our expansion strategy as well as our

research and development work. This will centre on

new technology and the continued quest for greener

products as the economy continues to flourish.

Once again: our success will rely on the support

of every party involved in our business and this is

especially important to our shareholders. We aim at

continuing the success and growth of the ZhongDe

Group and would also like to reward our shareholders

through a reasonable and appealing dividend policy.

We are working hard to realise this aim with promising

returns in the coming years.


We are extremely positive about what lies beyond the

horizon for the ZhongDe Group. The Chinese gov-

ernment’s emphasis on environmental protection is

a perfect fit for our business strategy as we develop

our plans for larger scale, cleaner municipal waste

technology.

Our plans include a new waste disposal project in

Datong, China. The signing of the general contracts for

the Datong waste disposal and electricity generation

project has been announced for 11 March 2008. What

makes this project particularly exciting for us is that

it is our first major project to also include electricity

generation on a large scale. Datong, a city of approxi-

mately 3.1 million people has commissioned the

ZhongDe Group to design, manufacture and construct

a waste incinerator plant with a maximum capacity of

1,500 tonnes per day with 30 MW electricity generators.

The aim is for the plant to treat an average of 1,000

tonnes of waste per day bringing the annual total for

treatment to 316,600 tonnes. Our plan: to install two

15 MW turbine generators. Used partly to produce

super-heated steam to drive the air-cooling turbo-

generator units, some of the electricity generated by

these turbines will also be diverted to the urban power

grid.

In the beginning of April 2008 we signed binding

agreements for another BOT project in Xinjiang Shanxi

with a daily waste disposal capacity of 100 tonnes.

With this contract we replace the initially planned

Changzhi project due to negotiated better terms:

compared with the Changzhi project, the concession

period has been extended from 20 to 30 years. Xinjiang

is a city with approx. 400,000 inhabitants located in

the south of Shanxi province. The waste disposal fee,

which amounts to RMB 70 per tonne will be paid on

a monthly basis directly by the local municipalities in

charge and adjusted to the inflation index annually.

After the contracted operating time, the City of Xinjiang

will take over the plant. The estimated total investment

cost amounts to approximately €1.82 million. Further

negotiations about the three additional BOT projects

in Guilin, Jian´ou and Wuxiang are underway and on

schedule.

These are just some of the plans we have in the pipeline

to develop our technology and help to create a cleaner

environment. With economic factors continuing to

look good, we are confident to bring these, and other

plans to bear and ensure the long-term success of the

ZhongDe Group business.

Events subsequent to reporting date

42–43

Statements and report pursuant to section 289 para. 4,

315 para. 4 German Commercial Code (HGB)

subscribed capital

The share capital of ZhongDe Waste Technology AG

amounts to €13 million and is divided into 13,000,000

no par value bearer shares with a notional amount of

€1 each.

restrictions regarding voting rights and the right to transfer shares

The Management Board is not aware of restrictions

regarding voting rights and the right to transfer shares.

direct or indirect participation in shares

At the time the management report was issued, Mr.

Zefeng Chen held 50.79% of the shares in ZhongDe

Waste Technology AG.

appointment and dismissal of management board members

The Management Board of ZhongDe Waste Technology

AG currently comprises two members appointed by the

Supervisory Board pursuant to section 84 of the

German Stock Corporation Act (AktG) for a period not

exceeding five years in each case. Any extension of the

term of office requires a Supervisory Board resolution

and may be adopted no earlier than one year prior to

expiry of the current term of office. In urgent cases, the

Additional disclosures

Local Court may appoint a person to an open and

required Management Board member seat upon

application by anyone with interests meriting protection

(such as other Management Board members) (section

85 AktG). This office would, however, then be

terminated as soon as the deficiency could be rectified,

in other words, as soon as the Supervisory Board has

appointed someone to the open Management Board

member position. Dismissal of a Management Board

member is permissible only with good cause (section 84

section 3 sentences 1 and 3 AktG). Good cause includes

gross negligence of duties, inability to duly perform

duties or revocation of confidence by the Annual

General Meeting, unless confidence was revoked for

obvious and subjective reasons. Pursuant to article 8 (2)

of the Articles of Association of ZhongDe Waste

Technology AG, the Supervisory Board may appoint a

Chair as well as a Deputy Chair of the Management

Board. ZhongDe Waste Technology AG currently has a

Chair and a Deputy Chair of the Management Board.

amendments of the articles of association

The Articles of Association can only be amended by

a resolution of the general shareholders’ meeting

according to section 179 of the German Stock

Corporation Act (AktG). Additionally, the Supervisory

Board – pursuant to article 18 (3) of the Articles of

Association – is entitled to amend the Articles of

Association, provided that these changes only concern

the wording or form.

authorised capital

According to article 4 (4) of the Articles of Association,

the Management Board, subject to the approval of

the Supervisory Board, is authorised to increase the

company’s share capital once or several times by up to

€5 million by issuing up to 5 million new no par value

bearer shares in consideration of contributions in cash

or in kind (authorised Capital 2007).

An amount of €3 million of such authorised Capital

2007 has been used. Thus, the current authorised

capital of the company amounts to €2 million.

report by the management board regarding dealings among group companies

In accordance with section 312 of the German Stock

Corporation Act (AktG), the Management Board has

issued a report regarding dealings among group

companies which includes the following concluding

declaration: “According to the circumstances known

to us at the time the transactions were executed, or

measures were implemented or omitted, ZhongDe

Waste Technology AG received appropriate consid-

eration for every transaction and has not been disad-

vantaged by the implementation or omission of any

measures.”

german local financial statements according to german commercial code (hgb)

ZhongDe Waste Technology AG is the ultimate parent

company of the ZhongDe Group and acts mainly as a

holding.

The net profit of €3.5 million for 2007 can largely be

attributed to the accrued dividend for 2007 paid by

Chung Hua Environmental Protection Assets (Holding)

Group Ltd. (€8.5 million) as well as interest yields

(€0.8 million) less expenses in connection with the IPO

(€6.3 million).

Report on ZhongDe Waste Technology AG

As of 31 December 2007 the company holds total

assets of €91.8 million of which €25 million represent

a 100% stake in Chung Hua Environmental Protection

Assets (Holding) Group Ltd. and €30 million represent

a loan to the same company designated for funding

investments of its subsidiary Fujian FengQuan Environ-

mental Protection Equipment Co. Ltd.

The total equity position of ZhongDe Waste Technology

AG as of 31 December 2007 is €91.5 million.


The Management Board

44–45

The Prime Standard has the most stringent transparency standards in

Germany. Our listing in this segment reinforces our ongoing commitment to comply with these conventions across

all areas of our business.


[048] Corporate Governance Report[051] Compensation Report



report of the management board and supervisory board on the company’s corporate governance

ZhongDe Waste Technology AG is committed to the

principles behind good and responsible corporate

governance.

We have earned the trust of our shareholders, clients

and employees thanks to the Supervisory Board and

Management Board working together closely and con-

structively. The hallmarks of this working arrangement:

open corporate communications, dedicated customer

service and due diligence in accounting and auditing.

management board

The Management Board of ZhongDe Waste Technology

AG comprises two members and is jointly responsible

for the management of the company. The members of

the Management Board provide the Supervisory Board

with frequent, timely and comprehensive information

on the Company’s strategy, planning, business

development and risk management. The Chairs of

the Management and Supervisory Boards are also in

touch regularly. For certain business transactions and

measures which are set forth in greater detail in its

Rules of Procedure, the Management Board must obtain

the Supervisory Board’s prior consent.

supervisory board

The Supervisory Board is comprised of three members

and is charged with, above all, monitoring and

advising the Management Board. It is also responsible

for electing members of the Management Board,

determining their remuneration and reviewing and

approving the annual financial statements of the

Company.

compensation of management board and supervisory board

The remuneration of the Management Board and the

Supervisory Board is reported in the compensation

report, which is part of the management report.

annual general meeting

Our shareholders exercise their basic rights, entitled by

law, at the annual general shareholders’ meeting. They

have the opportunity to address all agenda items and

ask questions regarding all company matters. Every

share of ZhongDe Waste Technology AG is entitled to

one vote.

financial reporting and annual audit

The consolidated financial statements of ZhongDe

Waste Technology AG are prepared pursuant to Inter-

national Financial Reporting Standards (IFRS) and the

individual financial statements are prepared according

to the German accounting rules as per the German

Commercial Code (HGB). BDO Deutsche Warentreu-

hand AG Wirtschaftsprüfungsgesellschaft has audited

the consolidated and individual financial statements.

The auditors attended the Supervisory Board’s meeting

on the separate and consolidated financial statements

and reported on the key results of their audit.

Corporate Governance Report


transparency

Shareholders, analysts, investors and the general public

are kept regularly up to date on main changes in the

business by ZhongDe Waste Technology AG.

The website of ZhongDe Waste Technology AG at

www.zhongdetech.de acts as the main channel

of communicating information. In addition to the

Articles of Association as well as information put

out by Management Board and Supervisory Board,

documents are available regarding the general share-

holders’ meeting, financial reports and details of the

business activities. Insider information is published as

announcements at short notice unless there are certain

circumstances in which the Company is released from

this duty. As soon as the company is aware that a

shareholder has reached, exceeded or fallen below the

threshold of 3, 5, 10, 15, 20, 25, 30, 50 or 75% of the

voting rights of the Company, the Management Board

reports this fact immediately. The due dates for regu-

larly-scheduled financial reporting are published on the

Company’s website.

The legal requirements for the release of announce-

ments have been complied with, and the obligation for

the transmission of information and documents to the

Federal Financial Supervisory Authority (BaFin) and

the public registers have been fulfilled.

directors’ dealings

The following directors’ dealings were disclosed to the

company:

On 12 July 2007 Mr. Zefeng Chen, Chairman of the

Management Board of ZhongDe Waste Technology AG,

sold 200,000 shares in ZhongDe Waste Technology AG

off-exchange at the price of €26.00 per share. This was

in accordance with the Green Shoe option agreed in the

Underwriting Agreement as part of the IPO.

compliance statement

ZhongDe Waste Technology AG complies with the

recommendations of the German Corporate Governance

Code as amended on 14 June 2007 with the following

variations:

As the members of the Management Board

of ZhongDe Waste Technology AG have service

agreements solely with the Chinese operational

Company Fujian FengQuan Environmental Protection

Equipment Ltd. but no service agreements with the

company, the recommendations under clause 4.2.2

and 4.2.3 of the German Corporate Governance

Code do not apply.

As there exists no stock option plan with the

company, the recommendation under clause 4.2.5 (2)

sentence 1 of the German Corporate Governance

Code does not apply.

As the Company’s supervisory board comprises only

three members and no committees exist, the recom-

mendations under clauses 5.2 (2) sentence 1, 5.3.1

sentence 1, 5.3.2 (1) sentence 1 and 5.3.2 (2) do not

apply.

As the Company’s Supervisory Board now only

receives a fixed compensation, the Company deviates

from the recommendation under clause 5.4.7 (2)


Code.

As the D&O insurance contracts for the members

of the Management Board and the Supervisory

Board of the company do not provide for a

deductible, the company deviates from the rec

ommendation under clause 3.8 (2) of the German

Corporate Governance Code.

In its first fiscal year after the Company’s IPO, the

Company will presumably not precisely meet the

45 day timeline as recommended under clause 7.1.2


Code. However, the Company aims to meet this

deadline in the near future.

The ZhongDe Waste Technology AG compliance

statement for 2008 will be published on the Company’s

website by 6 July 2008.


ZhongDe Waste Technology AG

Management Board

Supervisory Board

This report is based on the recommendations of the

German Corporate Governance Code. In accordance

with the requirements of german commercial law and

the Act on the Disclosure of Management Board Com-

pensation (VorstOG), this report contains information

that is an integral part of the notes pursuant to

section 314 German Commercial Code (HGB) and of the

management report pursuant to section 315 HGB

(see reporting pursuant to section 315 para. 2 no 4 and

section 4 HGB). For this reason, no additional details

are provided in the notes and management report.

compensation of the management board

The Management Board is compensated by Fujian

FengQuan Environmental Protection Equipment Ltd.

and does not receive any compensation by ZhongDe

Waste Technology AG:

compensation of the supervisory board

The general shareholders’ meeting of 18 June 2007

resolved that the members of the Supervisory Board

should receive a fixed compensation in the amount of

€12,500 per annum and an additional attendance fee

of €2,500 for each meeting of the Supervisory Board,

with the Chairman receiving four times the amount and

the Deputy Chairman receiving twice the amount of the

fixed compensation.

For financial year 2007 the following fixed remunera-

tions have been paid to the members of the Supervisory

Board:

Compensation Report

Zefeng Chen 17

Na Lin 12

Amounts in k¤ Fix salary

50–51

Hans-Joachim Zwarg * 39

Joachim Ronge * 21

Hao Quan 9

* incl. 19% VAT

Amounts in k¤ Fix salary

At ¤44 million our order intake in 2007 was at its highest ever – an increase of 90% that can be

directly linked to our strategy to focus on the municipal waste segment.


[055] Consolidated balance sheet[056] Consolidated statement of income and expenses[057] Consolidated statement of changes in equity[058] Consolidated statement of cash flow[060] Audit certificate[062] Notes to the financial statements[107] Responsibility statement

financial statements


54–55Consolidated balance sheet

of the zhongde group for the year ending 31 december 2007

Assets

Non-current assets

Equipment 2.2, 2.4, 7 887,299 306,254

Construction in progress 8 148,990 0

Intangible assets 2.5, 9 2,050,378 3,145

Deferred tax assets 2.17 360,000 122,879

3,446,666 432,278

Current assets

Inventories 2.9, 10 2,612,911 770,029

Trade receivables 2.2, 2.8, 11, 20 14,159,429 4,923,209

Other receivables and prepayments 11, 20 482,089 77,193

Amounts due from related parties 11, 19, 20 7,919 1,415,544

Cash and cash equivalents 2.7, 12, 20 83,827,323 9,198,384

101,089,671 16,384,359

Total assets 104,536,337 16,816,637

Liabilities

Capital and reserves

Share capital 1, 13 13,000,000 2,774,525

Capital reserve 13 69,422,049 0

Statutory reserve 13 3,656,832 1,765,356

Retained earnings 13 14,213,551 4,272,133

Foreign exchange difference 2.3 (1,663,724) 10,644

Total equity 98,628,708 8,822,658

Current liabilities

Short-term loans 2.10, 14, 20 0 680,980

Trade payables 2.10, 15, 20 1,234,507 443,566

Other payables and accruals 2.2, 2.10, 15, 20 3,903,470 734,718

Provisions 2.11, 15, 20 654,980 209,879

Amounts due to related parties 19, 20 74,741 5,115,013

Income tax payable 2.17, 15, 16, 20 39,931 809,823

Total liabilities 5,907,629 7,993,979

Total liabilities and equity 104,536,337 16,816,637

Amounts in ¤ 20062007Notes

Sales 2.13 31,133,286 18,994,565

Cost of sales 9,496,311 5,611,216

Gross profit 21,636,974 13,383,349

Other operating income 2,683 14

Selling and distribution expenses 1,237,941 734,766

Administrative expenses 680,699 377,224

Research and development expenses 2.5 265,507 203,461

Other operating expenses 843,600 165,323

Profit from operations 18,611,910 11,902,589

Finance income 2.13 933,073 16,231

Finance costs 2.15, 6 28,186 50,318

Profit before income tax 19,516,797 11,868,502

Income tax 2.17, 16 458,428 3,846,620

Profit for the period 19,058,369 8,021,882

Earnings per share * 1.47 0.62

* computed for comparison purposes only on the basis of 13,000,000 shares

Amounts in ¤ 20062007Notes

Consolidated statement of income and expenses


56–57Consolidated Statement of Change in Equity


Total equity

Foreign exchange

differencesRetained earnings

Capital reserve/

Statutoryreserve

Share capital

FengQuan

Share capital HK

Holding

Share capital

AGAmounts in ¤

Balance as at 1 January 2006 – – 2,774,084 971,545 3,726,563 472,928 7,945,120

Capital injection – 441 – – – – 441

Dividend paid for the year 2005 – – – – (3,350,700) – (3,350,700)

Transfers – – – 793,811 (793,811) – 0

Net profit for the year – – – – 8,021,882 – 8,021,882

Advance dividend paid for the year 2006 – – – – (3,331,801) – (3,331,801)

Foreign exchange difference – – – – – (462,284) (462,284)

Balance as at 1 January 2007 0 441 2,774,084 1,765,356 4,272,133 10,644 8,822,658 (combined consolidated)

Reclassification 10,000,000 (441) (2,774,084) – (7,225,475) – 0

Capital injection at parent company 3,000,000 – – – – – 3,000,000

Capital injection at subsidiary – 15,000,000 15,000,000 – – – 30,000,000

Consolidation – (15,000,000) (15,000,000) – – – (30,000,000)

Net profit for the period – – – – 19,058,369 – 19,058,369

Appropriations of current year’s income – – – 1,891,476 (1,891,476) – 0

Proceeds from IPO, gross - - - 75,000,000 - – 75,000,000

Charging IPO costs directly to equity – – – (6,277,951) – – (6,277,951)

Deferred taxes on IPO expenses – – – 700,000 – – 700,000

Foreign exchange differences – – – – – (1,674,368) (1,674,368)

Balance as at 31 December 2007 13,000,000 0 0 73,078,881 14,213,551 (1,663,724) 98,628,708

Consolidated statement of cash flow


Profit before income tax 19,516,797 11,868,502

Adjustments for

Amortization of intangible assets 7,520 380

Allowance for doubtful trade debts 69,988 138,570

Provision for warranty and welfare fund 345,750 162,149

Depreciation of property, plant and equipment 66,164 39,164

Gains/losses PPE 31 0

Interest income (933,073) (16,231)

Interest expense 28,186 50,318

Operating cash flows before working capital changes 19,101,363 12,242,852

Working capital changes

(Increase)/decrease in

Inventories (1,842,882) (201,416)

Trade receivables (9,306,208) (1,461,674)

Other receivables and prepayments (404,896) (38,442)

Amounts due from related parties 1,407,625 (551,047)

Increase/(decrease) in

Trade payables 790,941 75,155

Other payables, provisions and accruals 3,268,103 296,896

Amounts due from related parties 0 (33,167)

Cash generated from/(used in) operations 13,014,046 10,329,157

Interest received 933,073 16,231

Income tax paid (765,441) (3,972,640)

Net cash generated from operating activities 13,181,678 6,372,748

Amounts in ¤ 20062007


Cash flow from investing activities

Purchase property, plant, equipment, intangible assets, land use rights (2,954,182) (109,844)

Cash deposits (5,000,000) 0

Cash flow used in investing activities (7,954,182) (109,844)

Cash flow from financing activities

Capital injection 3,000,000 441

Proceeds from IPO, gross 75,000,000 0

IPO-costs (charged to equity) (6,277,951) 0

Short-term bank loans (680,980) 260,830

Loans from related parties (5,040,272) 5,141,648

Loans given to related parties 0 4,764,280

Interest paid (28,186) (50,318)

Dividends paid to shareholders 0 (6,518,742)

Cash flow from financing activities 65,972,611 3,598,139

Net increase in cash and cash equivalents 71,200,107 9,861,043

Cash at beginning of year 9,198,384 3,568

Foreign exchange differences (1,571,168) (666,227)

Cash at end of period 78,827,323 9,198,384


Audit certificate

We have audited the consolidated financial statements prepared by ZhongDe Waste

Technology AG, Hamburg, comprising the balance sheet, the income statement, the

notes to the consolidated financial statements, the cash flow statement, the statement

of changes in equity and the combined group management report for the business

year 1 January 2007 to 31 December 2007. The preparation of the consolidated

financial statements and group management report in accordance with International

Financial Reporting Standards (IFRSs) as adopted by the EU, and the additional

requirements of German commercial law under section 315a (1) of the German

Commercial Code (HGB) are the responsibility of the parent company’s management.

Our responsibility is to express an opinion on the consolidated financial statements

and on the combined group management report based on our audit.

We conducted our audit of the consolidated financial statements in accordance with

section 317 of the HGB and generally accepted German standards for the audit of

financial statements promulgated by the Institute of Public Auditors in Germany

(IDW). Those standards require that we plan and perform the audit so that misstate-

ments materially affecting the presentation of the net assets, the financial position

and the results of operations in the consolidated financial statements, in accordance

with German principles of proper accounting and in the group management report,

are detected with reasonable assurance. Knowledge of the business activities, the

economic and legal environment of the Group and expectations as to possible mis-

statements are taken into account in the determination of audit procedures. The effec-

tiveness of the accounting-related internal control system and the evidence supporting

the disclosures in the consolidated financial statements and the combined group

management report are examined primarily on a test basis within the framework

of the audit. The audit includes assessing the annual financial statements of those

entities included in the consolidated financial statements, the determination of entities

to be included in consolidation, the accounting and consolidation principles used and

significant estimates made by management, as well as evaluating the overall presen-

tation of the consolidated financial statements and the combined group management

report. We believe that our audit provides a reasonable basis for our opinion.

Our audit has not led to any reservations.

60–61

In our opinion, based on the findings of our audit, the consolidated financial

statements comply with IFRSs as adopted by the EU and the additional requirements

of German commercial law under section 315a(1) of the HGB, and give a true and

fair view of the net assets, financial position and results of operations of the Group

in accordance with these requirements. The combined group management report

is consistent with the consolidated financial statements and as a whole provides a

suitable view of the Group’s position and suitably presents the opportunities and risks

of future development.


BDO Deutsche Warentreuhand

Aktiengesellschaft

Wirtschaftsprüfungsgesellschaft

sgd.

Dr. Zemke zu Inn- u. Knyphausen

Auditor Auditor


1. Background and basis of preparation

1.1 the company

formation, business name, registered office, financial year and term of the company

ZhongDe Waste Technology AG (“the Company”) has been formed by means of a

notarial deed of incorporation (Gründungsurkunde), dated 4 May 2007. The business

name (Firma) of the Company is “ZhongDe Waste Technology AG”. The Company is

registered under the registration number HRB 101376 in Hamburg. The legal domicile

(Sitz) of the Company is Hamburg, Germany, and the Company’s business address

is Stadthausbrücke 1–3, 20355 Hamburg, Germany. The Company’s financial year

(Geschäftsjahr) is the calendar year (i.e. 1 January to 31 December); the first financial

year of the Company is a short business year (Rumpfgeschäftsjahr). The duration of

the Company (Dauer der Gesellschaft) is unlimited.

The consolidated financial statements represent a full financial year because of the

analogously applied reverse acquisition method. From a business point of view the

subsidiary Fujian FengQuan Environmental Protection Equipment Ltd. (“FengQuan”),

Fuzhou, China (PRC), whose shares have been acquired, has to be regarded as the

acquirer and ZhongDe Waste Technology AG as the issuing entity has to be regarded

as the acquiree. FengQuan has a full business year.

business purpose of the company

The Company’s purpose (Unternehmensgegenstand) is the holding, administration

and disposal of direct and indirect participations of undertakings and participations in

the waste disposal business, particularly waste incineration and waste management,

including all transactions related thereto and services for affiliated entities. According

to section 2, para. 2 of the Articles of Association, the Company is entitled to conduct

all measures and business transactions which it deems necessary and useful for the

implementation of the purpose of the Company. In particular, it may for this purpose

establish branches in the country where it has its seat. Abroad, it may establish

or acquire companies of the same or similar type, or acquire an interest in such

companies, demerge parts of its business to subsidiaries and associated companies,

including joint ventures with third parties, sell interests in other companies, conclude

enterprise agreements, or limit itself to the management of shareholdings.

Notes to the financial statements

62–63

group structure and recent corporate restructuring of zhongde group

The operational business of ZhongDe Group in 2006 and 2007 was exclusively carried

out by FengQuan, a limited liability company formed under the laws of the PRC.

FengQuan is registered as a wholly foreign-owned enterprise. The sole shareholder

of FengQuan is Chung Hua Environmental Protection Assets (Holdings) Group Ltd.,

a limited liability company being formed under the laws of Hong Kong (“Chung Hua

Holding”), which is a wholly-owned subsidiary of ZhongDe Waste Technology AG (the

“Company”).

FengQuan was established in 1996 under the laws of the PRC. The registered share

capital of FengQuan has been increased from RMB 29 million to RMB 250 million

in July 2007. The current amount the company has received is RMB 184,218,500.

All shares in FengQuan are held by Chung Hua Holding, a limited liability company,

formed under the laws of Hong Kong on 25 February 2004 and registered with

the Registrar of Companies in Hong Kong under the registration number 884757.

Currently the authorised share capital of Chung Hua Holding amounts to HKD 4,200

and is fully paid-up.

As to the acquisition of the shares in FengQuan by Chung Hua Holding, a share

transfer agreement was concluded between the original shareholders and Chung Hua

Holding on 28 June 2006, and further approved by the authorised PRC authorities.

Upon formation of the Company, all shares in Chung Hua Holding were transferred to

the Company by means of a share contribution agreement (Einbringungsvertrag) as a

contribution in kind (Sacheinlage).

In 2007 FengQuan established a new subsidiary in the Beijing Area (Beijing ZhongDe

Environmental Protection Equipment Co. Ltd.) to start business activities in the

Beijing area. The production facilities are still under construction.


All subsidiaries of ZhongDe Waste Technology AG are consolidated. In summary:

Dividends to be paid by the operating Chinese subsidiaries have to be approved

generally by Chinese government bodies. In addition dividends are only payable if

Chinese statutory reserves satisfy the relating legal requirements.

Cash transfers from mainland China generally depend on formal approval procedures

by Chinese government bodies.

development of the share capital

The Company has been formed by means of contribution in kind (Sachgründung),

where the founders have contributed all their shares in Chung Hua Holding against

the issuance of 10 million bearer shares no par value (Stückaktien) with a nominal

amount of the share capital of €1.00 each. The Company’s share capital is fully paid

in.

On 4 July 2007, the Management Board (Vorstand), with the consent of the

Supervisory Board (Aufsichtsrat) by resolution on the same day, exercised its

authority to increase the share capital (genehmigtes Kapital), as set forth in section 4

para. 4 of the Company’s Articles of Association (Satzung) and resolved on the

increase of the Company’s share capital from €10 million by €3 million to €13 million

against contributions in cash (Bareinlagen) in return of the issuance of 3 million no

par value ordinary bearer shares (Inhaber-Stückaktien) with a nominal amount of the

share capital of €1.00 each. The pre-emptive rights (Bezugsrechte) of the existing

shareholders have been excluded. The application for registration of the resolution

on that capital increase and its execution has been made public with the commercial

register of the local court (Amtsgericht) of Hamburg on 4 July 2007. The registration

and effectiveness of that capital increase took place on 5 July 2007.

Results2007

Equity31 Dec 2007ShareAmounts in k¤

Chung Hua Environmental Protection Assets (Holdings) Group Ltd., Hong Kong 100% 19,206 9,114

Fujian FengQuan Environmental Protection Equipment Ltd., Fuzhou, PRC 100% 31,362 19,406

Beijing ZhongDe Environmental Protection Equipment Co. Ltd., Beijing, PRC 100% 2,659 (115)

64–65

1.2 basis of preparation

The consolidated financial information, especially with regard to 2006, has been

presented as if ZhongDe Waste Technology AG (the Company) already existed

over the whole period in order to have comparable figures. The acquisitions of the

sub “Business Combination” of ZhongDe Waste Technology AG, which have to be

regarded as transactions under common control, have been accounted in accordance

with the principles of reverse acquisition accounting, on the basis that the former

majority shareholders of the subsidiaries retain effective control of the Group. Con-

solidation measures are essentially related to equity elements in the balance sheet

and do not materially effect the equity total. No goodwill arose in respect of the

acquisitions.

The business is more or less totally driven by the ultimate subsidiary Fujian FengQuan

Environmental Protection Equipment Co. Ltd., whereas ZhongDe Waste Technology

and Chung Hua Environmental Protection Assets (Holdings) Group Ltd. assume

holding functions.

The present financial statements have been prepared in accordance with the

provisions of the International Financial Reporting Standards (IFRSs) and/or Inter-

national Accounting Standards (IAS) as adopted by the International Standards

Board (IASB) and the EU along with the interpretations of the International Financial

Reporting Interpretations Committee (IFRIC) with consideration to the aforemen-

tioned scope of consolidated financial statements.

The consolidated financial statements were generally prepared using the historical

cost convention. Exceptions to this rule relate to financial instruments assigned to the

“available for sale” category, which are measured at fair value where such fair value

can be reliably determined. The consolidated income statement was prepared using

the cost of sales method. Individual line items have been summarised in the income

statement and the balance sheet to aid clarification of the presentation. These items

are disclosed and explained separately in the notes.

The accounting policies correspond generally to those applied in the previous year. In

addition, the Group has applied the following new or revised standards and interpre-

tations that are relevant to the business activities of the Group and were required to

be applied for the first time in the 2007 business year:


IAS 1 “Presentation of Financial Statements” – Capital Disclosures

IFRS 7 “Financial Instruments: Disclosures”

IFRIC 10 “Interim Financial Reporting and Impairment”

Apart from additional disclosure requirements, application of these Standards and

Interpretations had no material effects on the consolidated financial statements. The

following new or revised Standards and Interpretations relevant for the ZhongDe

Group’s business operations are published as of 31 December 2007, but not yet

required to be applied for the business year then ended:

IAS 1 “Presentation of Financial Statements“

IFRS 8 “Operating segments“

The Group did not exercise any options to apply Standards and Interpretations prior

to their effective date. Apart from additional or modified disclosure requirements, no

significant effects on the consolidated financial statements are expected for the first

time adoption.

2. Significant accounting policies

2.1 basis of consolidation

A subsidiary is a company controlled by the Company. Control is achieved when the

Company has the power, directly or indirectly, to govern the financial and operating

policies of the company so as to acquire benefit from its activities. Investment in a

subsidiary, if any, is stated in the Company’s balance sheet at cost less any impairment

losses.

The consolidated financial statements comprise the financial statements of the

Company and its subsidiaries as at the balance sheet date. The consolidation is based

on the assumption that the Company oversees all reporting periods as the parent

company.

The financial statements of the subsidiaries are prepared for the same reporting date

as the parent Company. Consistent accounting policies are applied for like transac-

tions and events in similar circumstances.

66–67

All inter-group balances, transactions, income, expenses, profits and losses resulting

from inter-group transactions that are recognised as assets, are fully eliminated.

Subsidiaries are fully consolidated from the date of acquisition, being the date on

which the Group obtains control, and continue to be consolidated until the date such

control ceases.

Acquisitions of subsidiaries, if any, are accounted for using the purchase method.

The cost of an acquisition is measured as the fair value of the assets given, equity

instruments issued and liabilities incurred or assumed at the date of exchange, plus

cost directly attributable to the acquisition. Identified assets acquired and liabilities

and contingent liabilities assumed in a business combination are measured initially

at their fair value at the acquisition date, irrespective of the extent of any minority

interest.

Any excess of the cost of the business combination over the Group’s interest in the

net fair value of the identified assets, liabilities and contingent liabilities represents

goodwill.

Any excess of the Group’s interest in the net fair value of the identifiable assets,

liabilities and contingent liabilities over the cost of business combination, is

recognised in the income statement on the date of acquisition.

2.2 significant accounting estimates and judgements

The preparation of financial statements in accordance with IFRSs requires

management to exercise judgement in the process of applying the Group’s accounting

policies. And it requires the use of accounting estimates and assumptions that affect

the reported amounts of assets and liabilities and disclosure of contingent assets and

liabilities at the date of the financial statements and the reported amount of revenue

and expenses during the reporting period.

The following estimates, which have a significant risk of causing a material

adjustment to the carrying amount of assets and liabilities within the next financial

year, are disclosed below:


a. allowance for trade receivables

Trade receivables are recorded at the invoiced amount and do not bear interest. The

allowance for doubtful receivables is the Group’s best estimate of the amount of

probable credit losses in the Group’s existing accounts receivables.

Management uses judgement to determine the allowance for doubtful receivables

which are supported by the historical write-off credit history of the customers and

repayment records. The Group reviews its allowance for doubtful receivables at least

monthly. Accounts balances are charged against the allowance after all means of

collection have been exhausted and the potential for recovery is considered remote.

Actual results could differ from estimates.

b. depreciation of equipment

The cost of equipment used for the manufacturing process is depreciated on a

straight-line basis over its estimated useful life. The management estimates the useful

life of these plants and equipment to be between 5 and 10 years, common life expec-

tancies in the machine manufacturing industry. The carrying amount of the Group’s

equipment at 31 December 2007 were k€887. Changes in the expected level of usage

and technological developments could affect the economic useful life and the residual

value of these assets, therefore, future depreciation charges could be revised.

Although these estimates are based on management’s best knowledge of current

events and actions, actual results may differ from these estimates.

c. provision for warranty

Assumptions used to calculate the provision for warranties were based on current

sales levels and current information available on returns based on the one-year

warranty period for all products sold. It is expected most of these costs will be

incurred one year after the balance sheet date.

2.3 functional and presentation currency

a. functional currency

The directors have determined the currency of the primary economic environment in

which the Group operates to be Renminbi (RMB). Sales and major costs of providing

goods and services, including major operating expenses are primarily influenced by

fluctuations in RMB.

68–69

b. foreign currency transactions

Transactions in foreign currencies are measured in the respective functional

currencies of the combined entities and are recorded, on initial recognition, in the

functional currencies at the approximate exchange rates current as at the transaction

dates. Monetary assets and liabilities denominated in foreign currencies are

translated at the closing rate of exchange current at the balance sheet date. Non-

monetary items that are measured in terms of historical cost in a foreign currency are

translated using the exchange rates as at the date of the initial transactions. Non-

monetary items measured at fair value in a foreign currency are translated using the

exchange rates at the date when the fair values are determined.

Exchange differences arising from the settlement of monetary items or on translating

monetary items at the balance sheet date are recognised in the income statement

except for exchange differences arising on monetary items that form part of the

Group’s net investment in foreign subsidiaries. These are recognised initially in a

separate component of equity as foreign currency translation reserve in the consoli-

dated balance sheet and recognised in the consolidated income statement on disposal

of the subsidiary.

c. foreign currency translation

The presentation currency of the Group is Euro. The results and financial position

of the combined entities which are in measurement currency other than Euro are

translated from RMB respective HK$ into Euro as follows:

hk$ = rmb 0.9431

Year end 10.7524 10.2793

Average 10.4178 10.0096



The results and financial position of foreign operations are translated using the

following procedures:

Assets and liabilities for each balance sheet are presented at the closing rate ruling

at the balance sheet date. Income and expenses for income statements are translated

at annual average exchange rates, which is approximate to the exchange rates at the

date of transactions.

All resulting exchange differences are recognised in the currency translation reserve,

a separate component of equity.

2.4 equipment

Equipment is recorded at historic cost, less accumulated depreciation and any

impairment loss where the recoverable amount of the asset is estimated to be lower

than its carrying amount.

Equipment in the course of construction for production or administrative purposes

is carried at cost, less any recognised impairment loss. Depreciation of these assets

commences when the assets are ready for their intended use.

Depreciation is charged so as to write off the costs of the assets over their estimated

useful lives, using the straight-line method, as follows:

Machinery, equipment – 10 years

Electronic equipment, fixtures and fittings – 5 years

The residual values, useful life and depreciation method are reviewed at each

financial year-end to ensure that the amount, method and period of depreciation are

consistent with previous estimates and the expected pattern of consumption of the

future economic benefits embodied in the items of property, plant and equipment.

The carrying values of property, plant and equipment are reviewed for impairment

when events or changes in circumstances indicate that the carrying value may not be

recoverable.

The gain or loss arising from the disposal or retirement of an item of equipment is

determined as the difference between the sales proceeds and the carrying amount of

the asset and is recognised in profit or loss.

70–71

2.5 intangible assets

a. land use rights

The subsidiary in Beijing acquired land use rights in connection with the construction

of new manufacturing facilities. The land use rights are amortised over a period of

50 years.

b. financial software Acquired financial software is capitalised on the basis of cost incurred to acquire

and bring it to the intended condition of use. Direct expenditure, which can enhance

or extend the performance of the software and which can be measured reliably, is

recognised as a capital improvement and added to the original cost of the software.

Costs associated with maintaining the software are recognised as expense as

incurred.

Financial software is stated at cost less accumulated amortisation and any impairment

losses. The costs are amortised using a straight line method over its estimated useful

life of 10 years.

c. research and development costs

Research costs, if any, are expensed in the period in which they incur. An intangible

asset arising from development expenditure on an individual project is recognised

only when the Group can demonstrate the technical feasibility of completing the

intangible asset so that it will be available for use or sale, its intention to complete

and its ability to use or sell off the asset, how the asset will generate future economic

benefits, the ability of resources to complete and the ability to reliably measure the

expenditure during the development.

The carrying amount of the development costs is reviewed for impairment annually

if the asset is not yet in use or more frequently if an indication of impairment arises

during the reporting period. Upon completion, the development costs are amortised

over the estimated useful life and assessed for impairment whenever there is an

indication that the intangible asset may be impaired.


2.6 impairment of non-financial assets

At each reporting date the Group assesses whether there is an indication that an asset

may be impaired. If any such indication exists, or an annual impairment test for an

asset is required, the Group makes an estimate of the asset’s recoverable amount.

An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair

value less costs to sell and its value in use and is determined for an individual asset,

unless the asset does not generate cash inflows that are largely independent of those

from other assets or groups of assets. In assessing value in use, the estimated future

cash flows are discounted to their present value using a pre-tax discount rate that

reflects current market assessments of the time value of money and the risk specific to

the asset. Where the carrying amount of an asset exceeds its recoverable amount, the

asset is considered impaired and is written down to its recoverable amount.

As assessment is made at each reporting date as to whether there is any indication

that previously recognised impairment losses recognised for an asset other than

goodwill may no longer exist or may have decreased. If such an indication exists, the

recoverable amount is estimated. A previously recognised impairment loss is reversed

only if there has been a change in the estimates used to determine the asset’s

recoverable amount since the last impairment loss is recognised. If that is the case the

carrying amount of the asset is increased to its recoverable amount. That increased

amount can not exceed the carrying amount that would have been determined, net

of depreciation, had no impairment loss been recognised for the asset in previous

years. Reversal of an impairment loss is recognised in the income statement. After

such a reversal, the depreciation charge is adjusted for future periods to allocate the

asset’s revised carrying amount, less any residual value, on a systematic basis over its

remaining useful life.

2.7 cash and cash equivalents

Cash and cash equivalents comprise cash in hand, bank deposits and short-term

highly liquid investments that are readily convertible to known amounts of cash and

which are subject to an insignificant rise of changes in value.

72–73

2.8 trade and other receivables

Trade and other receivables are recognised and carried at the original amount less an

allowance for any uncollectible amounts. Bad debts are written off when identified.

2.9 inventories

Inventories are valued at acquisition and production costs or the lower of cost and net

realisable value. Costs incurred in bringing the inventories to their present location

and condition is accounted for as follows:

raw materials:

purchase cost on a weighted average basis

finished goods and work in progress:

costs of direct materials and labour and a proportion of manufacturing overheads

based on normal operating capacity but excluding borrowing costs.

Net realisable value is the estimated selling price in the ordinary course of business

less estimated costs of completion and the estimated costs necessary to make the sale.

2.10 financial liabilities and equity

Financial liabilities and equity instruments are classified according to the substance

of the contractual arrangement entered into. Significant financial liabilities include

interest-bearing short-term bank loans, trade and other payables.

Trade and other payables are carried at cost which is the fair value of the consider-

ation to be paid in the future for goods and services received. Gains and losses are

recognised in the income statement when the payment of the liabilities is identified

as needless. All loans and borrowings are initially recognised at cost, being the fair

value of the consideration received net of issue costs associated with the borrowing.


2.11 provisions

Provisions are recognised when the Group has a present obligation (legal or con-

structive) where, as a result of a past event, it is probable that an outflow of resources

embodying economic benefits will be required to settle the obligation and a reliable

estimate can be made of the amount of the obligation. Where the Group expects some

or all of a provision to be reimbursed, the reimbursement is recognised as a separate

asset but only when the reimbursement is virtually certain. The expense relating to

any provision is presented in the consolidated income statement net of any reimburse-

ment.

If the effect of the time value of money is material, provisions are discounted using a

current pre-tax rate that reflects, where appropriate, the risks specific to the liability.

Where discounting is used, the increase in the provision due to the passage of time is

recognised as a finance cost.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current

best estimate of the obligation. If it is no longer probable that an outflow of resources

embodying economic benefits will be required to settle the obligation, the provision is

reversed.

2.12 operating lease

Where the Group has the use of assets under operating leases, payments made under

the leases are recognised in the income statement on a straight-line basis over the

term of the lease.

2.13 revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will

flow to the Group and the revenue can be reliably measured. The following specific

recognition criteria must also be met before revenue is recognised.

a. sales of goods

Revenue is recognised upon the transfer of significant risk and rewards of ownership

of the goods to the customer, which generally coincides with delivery and acceptance

74–75

of the goods sold. Revenue is not recognised to the extent where there are significant

uncertainties regarding recovery of the consideration due, associated costs or the

possible return of goods.

b. rendering service

Revenue from services rendered is recognised when the services are rendered and

relating revenue can be measured reliably.

c. interest income

Interest income is accrued on a time proportionate basis, by reference to the principal

outstanding and at the interest rate applicable, on an effective yield basis.

2.14 pension scheme

The Group participates in national pension schemes as defined by the laws of the

country in which it has operations. Contributions to national pension schemes are

recognised as an expense in the period in which the related service is performed.

2.15 interest bearing loans

All loans and borrowings are initially recognised at cost, being the fair value of the

consideration received net of issue costs associated with the borrowing.

2.16 derecognition of financial assets and liabilities

a. financial assets, if any A financial asset is derecognized where:

the contractual rights to receive cash flows from the assets have expired;

the Group retains the contractual rights to receive cash flows from the asset,

but has assumed an obligation to pay them in full without material delay to a

third party under a “pass-through” arrangement; or

the Group has transferred its rights to receive cash flows from the asset and

either (a) has transferred substantially all the risks and rewards of the asset,

or (b) has neither transferred nor retained substantially all the risks and

rewards of the asset, but has transferred control of the asset.


b. financial liabilities

A financial liability is derecognised when the obligation under the liability is

discharged, cancelled or expires.

Where an existing financial liability is replaced by another from the same lender

on substantially different terms or the terms of an existing liability are substan-

tially modified, such an exchange or modification is treated as a derecognition of

the original liability and the recognition of a new liability, and the difference in the

respective carrying amounts is recognised in the income statement.

2.17 taxation

Income tax for the financial year comprises current and deferred tax. Income tax

is recognised in the income statement except for the extent that relates to items

recognised directly in equity.

Current tax assets and liabilities for the current and prior period are measured by

the amount expected to be recovered from or paid to the taxation authorities. The tax

rates and tax laws used to calculate the amount are those that are enacted or substan-

tively enacted by the balance sheet date.

Deferred income tax is accounted for using the liability method. This is based on

temporary differences, as at the balance sheet date, between the tax bases of assets

and liabilities and their carrying amount for financial reporting purposes.

Deferred tax liabilities, if any, are recognised for taxable temporary differences,

except:

where the deferred tax liability arises from the initial recognition of goodwill or of

an asset or liability in a transaction that is not a business combination and, at the

time of the transaction, affects neither the accounting profit nor taxable profit or

loss; and

in respect of taxable temporary differences associated with investments in

subsidiaries, associated companies and interests in joint ventures, where the

timing of the reverse of the temporary difference can be controlled by the Group

and it is probable that the temporary difference will not reverse in the foreseeable

future.

76–77

Deferred income tax assets are recognised for all deductible temporary differences,

carried forward unused tax credits and unused tax losses. This is to the extent

that it is probable that taxable profit will be available, against which the deductible

temporary differences, and the carried-forward unused tax credits and unused tax

losses can be utilised except:

where the deferred income tax asset relating to the deductible temporary

difference arises from the initial recognition of an asset or liability in a transaction

that is not a business combination and, at the time of the transaction, affects

neither the accounting profit nor taxable profit or loss; and

in respect of deductible temporary differences associated with investment in

subsidiaries, associated companies and interests in joint ventures, deferred

tax assets are recognised only to the extent that it is probable that the temporary

difference will reverse in the foreseeable future and taxable profit will be available.

Temporary differences can be utilised against this.

Deferred income tax assets and liabilities, if any, are measured at the tax rates that

are expected to apply to the year when the asset is realised or the liability is settled,

based on the tax rates and tax laws that have been enacted or substantively enacted at

the balance sheet date.

Deferred tax assets and deferred tax liabilities, if any, are offset if a legally

enforceable right exists to set off current tax assets against current tax liabilities and

the deferred taxes relate to income taxes levied by the same tax authority.

The carrying amount of deferred income tax assets is revised at each balance sheet

date and reduced to the extent that it is no longer probable that sufficient taxable

profits will be available to allow all or part of the deferred income tax asset to be

utilised. Unrecognised deferred income tax assets are reassessed at each balance

sheet date and are recognised to the extent that it has become probable that future

taxable profits will allow the deferred tax asset to be recovered.


3. Revenue

Sale of goods represents the invoiced amount of delivered goods net of discounts,

returns and valued added tax. All intra-group transactions are excluded from the

revenue of the consolidated group.

4. Segment analysis

segment information

The primary segment reporting format is determined to be the business segment as

the Group’s risks and rates of return are affected predominantly by differences in

the products. The operating business is reported separately according to the nature

of the products, with each representing a strategic business unit that offers different

products.

a. business segment

The Group’s operating businesses are organised into two business segments, namely

incinerators specifically for the disposal of urban municipal waste and incinerators

specifically for the disposal of medical waste.

b. geographical business

The Group is principally engaged in the design and manufacture of various incinera-

tors in the People’s Republic of China (PRC) and all of its customers are based in the

PRC. In addition, all identifiable assets of the Group are principally located in the PRC.

Therefore, no geographical segment analysis is presented.

c. allocation basis

Segment assets, liabilities and results include items directly attributable to a segment

as well as those that can be allocated on a reasonable basis. Unallocated items

comprise mainly the items which can not be allocated reasonably.

Inter-segment sales are eliminated on consolidation.

78–79

The following table presents revenue and results information regarding the Group’s

business segments for the financial year ending 31 December 2007:

business segment

Revenue

Sales to external customers

Incinerators specifically for the disposal of medical waste 9,441 15,543

Incinerators specifically for the disposal of urban household waste 21,692 3,452

31,133 18,995

Results


Incinerators specifically for the disposal of urban household waste 14,309 2,117

Unallocated income 961 16

Unallocated expenses * (3,082) (1,531)

Profit from operations before tax 19,517 11,869

Income tax (459) (3,847)

Profit for the year 19,058 8,022

* thereof planned depreciation

Amounts in k¤ 31 Dec 200631 Dec 2007


The following table presents assets, liabilities and other information regarding the

Group’s segments for the year ending 31 December 2007:

Unallocated assets mainly represent cash (€83.8 million (2006: €9.2 million)), and

deferred taxes (k€360 (2006: k€123)).

5. Expenses

Assets and liabilities

Segment assets

Incinerators specifically for the disposal of medical waste 3,741,661 2,269,644

Incinerators specifically for the disposal of urban household waste 13,030,679 5,185,074

Unallocated assets 87,763,997 9,361,919

Total assets 104,536,337 16,816,637

Segment liabilities


Incinerators specifically for the disposal of urban household waste 3,713,152 43,569

Unallocated liabilities 2,112,116 7,532,237

Total liabilities 5,907,629 7,993,979

Investments in fixed assets, construction in progress 833,353 109,844

Investments in intangible assets 2,120,649 –

Depreciation and amortisation 73,684 39,544

Amounts in ¤ 31 Dec 200631 Dec 2007

Depreciation of property, plant and equipment 66,164 39,164

Staff costs 986,334 674,272

Amortisation of intangible assets 7,520 380

Allowance for doubtful trade debts 69,988 138,570

Costs (expenses) for raw material 9,496,311 5,611,216


80–81

6. Finance costs

7. Equipment

The plant and office buildings currently used by the Group are leased from Fujian

FengQuan Environmental Protection Group Co. Ltd. Details are set out in Notes 18

and 19.

Interest expense on bank loan 27,680 50,228

Bank charges 506 91

28,186 50,318


TotalElectronic

equipmentVehicleAmounts in ¤

Acqusition costs

At 31 December 2006 417,849 0 47,778 465,627

Additions 0 614,942 64,816 679,758

Disposals 0 0 402 402,00

Exchange difference (18,385) (19,136) (4,057) (41,578)

At 31 December 2007 399,464 595,806 108,135 1,103,405

Accumulated depreciation and impairment

At 31 December 2006 131,767 0 27,606 159,373

Depreciation charged for the year 39,162 17,748 9,254 66,164

Disposals 0 0 371 371,00

Exchange difference (7,016) (552) (1,492) (9,060)

At 31 December 2007 163,913 17,196 34,997 216,106

Net carrying amount

At 31 December 2006 286,082 0 20,172 306,253

At 31 December 2007 235,551 578,610 73,138 887,299

Machine equipment


8. Construction in progress

Constructionin progressAmounts in ¤

Acqusition costs

At 31 December 2006 0

Additions 153,775

Disposals 0

Exchange difference (4,785)

At 31 December 2007 148,990

Accumulated depreciation and impairment


Depreciation charged for the year 0

Disposals 0

Exchange difference 0


Net carrying amount


At 31 December 2007 148,990

82–83

9. Intangible assets

significant intangible assets used by the group but not recognised as assets

All intellectual properties necessary for production are owned by Zefeng Chen.

Pursuant to the agreement dated 25 July 2006, these intellectual properties have been

licensed exclusively to Fujian FengQuan Environmental Protection Equipment Co. Ltd.

for its development and manufacture activities.

This also applies to other intellectual properties such as the brand, which is owned

by Fujian FengQuan Environmental Protection Co. Ltd. Pursuant to the agreement

dated 25 July 2006, the brand is granted for use by Fujian Environmental Protection

Equipment Co. Ltd. on an irrevocable and exclusive basis. The grant is valid and

subsists within its legal protection period and free of any charge.

The land use rights relate to the new subsidiary in Beijing. Over a period of five

years the subsidiary is obliged to invest an accumulated sum of RMB 300 million,

(€27.9 million) to generate an annual turnover of RMB 1,200 million (€111.6 million)

with annual income tax expenses of RMB 100 million (€9.3 million). If these targets

are not met, the ZhongDe Group has to pay fines of kRMB 110 (k€10).

Acquisition Costs

At 31 December 2006 3,947 0 0 3,947

Additions 6,959 1,920 2,111,770 2,120,649

Exchange difference (669) (60) (65,715) (66,444)

At 31 December 2007 10,237 1,860 2,046,055 2,058,152

Accumulated amortisation and impairment

At 31 December 2006 802 0 0 802

Amortisation 481 0 7,039 7,520

Exchange difference (329) 0 (219) (548)

At 31 December 2007 954 0 6,820 7,774

Net carrying amount

At 31 December 2006 3,145 0 0 3,145

At 31 December 2007 9,283 1,860 2,039,235 2,050,378

Amounts in ¤ TotalLand use rightTrademarkSoftware


10. Inventory

11. Trade and other receivables

All amounts are due by one year.

Raw materials and consumables 203,317 172,225

Finished goods 2,090,432 519,420

Work in progress 319,162 78,384

2,612,911 770,029


Trade receivables

Trade receivables 14,530,364 5,199,763

Allowance for trade receivables (370,935) (276,554)

14,159,429 4,923,209

Other receivables

Other receivables 279,846 52,708

Prepayments 202,243 24,485

482,089 77,193

Allowance for other receivables 0 0

482,089 77,193

Related parties

Amount due from related parties trade 0 1,484,926

Amount due from related parties non trade 7,919 4,864

Allowance for amount due from related parties 0 (74,246)

7,919 1,415,544

14,649,437 6,415,946


84–85

trade receivables

All trade receivables are non-interest bearing. They are recognised at their original

invoice amounts which represent their fair values on initial recognition. The ageing is

as follows:

allowance for doubtful receivables

For each financial period, the following amounts of impairment loss are recognised in

the income statement.

12. Cash and cash equivalents

Within 30 days 3,261,232 2,426,767

31–90 days 4,291,581 2,241,723

91–180 days 5,404,936 1,397,070

181–360 days 1,562,799 597,124

361–1080 days 9,816 22,005

14,530,364 6,684,689


Provision for trade receivables 35,570 134,935

Provision for other receivables 0 0

35,570 134,935


Cash at banks and in hand 71,627,323 4,820,654

Short-term deposits (duration up to 3 months) 7,200,000 4,377,730

Cash fund 78,827,323 9,198,384

Short-term deposits (duration over 3 months) 5,000,000 0

83,827,323 9,198,384

Thereof in Germany 28,030,637 0

Thereof in China 55,796,686 9,198,384



Cash at banks earns interest at an annual rate of up to 0.72%. The short-term deposit

is made for a varying period between one day and six months depending on the

immediate cash requirements of the Group, and earns interest at an annual rate of up

to 5.09%.

13. Equity

13.1 paid-in capital

The share capital of the parent company amounts to €13 million and is divided into

13 million bearer shares of no par value. Reference is made in the notes under 1.1.

According to article 4 (4) of the Company’s Articles of Association (Satzung), the

Management Board (Vorstand) of the Company is, upon consent of the Supervisory

Board (Aufsichtsrat), authorised to increase the Company’s share capital one time

or several times by an amount up to €5 million in the aggregate against contribu-

tions in cash or in kind in return of up to 5 million no par value ordinary bearer

shares (Inhaber-Stückaktien) with a nominal amount of the share capital of €1 each

(genehmigtes Kapital). The Management Board is, upon consent of the Supervisory

Board, also entitled to exclude the pre-emptive rights (Bezugsrechte) of the share-

holders existing at the time of the resolution on the capital increase.

The authorised share capital now amounts to €2 million after the share capital

increase by €3 million in 2007.

13.2 reserves and retained earnings

a. capital reserve

As reflected in the statement of changes of equity the Company realised proceeds

from the IPO of €75 million. IPO expenses totalling €6.3 million have been directly

charged to capital reserves and netted. Deferred income taxes of k€700 (thereof

k€360 reflected as deferred tax asset) have been set-off. The net total charged to

capital reserves consequently amounts to €69.4 million.

86–87

b. statutory reserve

The statutory reserve relates to the subsidiary FengQuan. According to the legal

regulations of PRC China a corporate enterprise has to allocate at least 10% of its

earnings to the statutory reserve until this amounts to at least 50% of the paid-in

capital. The statutory reserve can be used for a loss compensation or for a capital

increase as long as the reserve does not fall below 25% of the paid-in capital.

c. retained earnings

The retained earnings reserve comprises the cumulative net gains and losses

recognised in the consolidated income statement.

14. Interest bearing loans and borrowings

a) The one-year bank loan facility #1 was required to be repaid on 20 November 2007.

Interest was charged at 7.254% per annum. The bank loan was collateralised by third

party.

b) The one-year bank loan facility #2 was required to be repaid on 28 June 2007.

Interest was charged at 7.605% per annum. The bank loan was not collateralised.

Current bank loan

#1 a 0 291,849

#2 b 0 389,132

0 680,980

Amounts in ¤ 20062007Note


15. Trade and other payables

All trade payables are non-interest bearing. The fair value of trade and other payables

has not been disclosed as, due to their short duration, management considers the

carrying amounts recognised in the balance sheet to be a reasonable approximation

of their fair value.

The amount due to related parties is non-trade (31 December 2007 k€74.7).

provisions

Warranty: a provision is recorded for expected warranty claims on products sold

during the last one year, based on past experience of the level of repairs and returns.

It is expected that most of these costs will be incurred after one year after the balance

sheet date. Assumptions used to calculate the provision for warranties were based

on current sales levels and current information available about returns based on the

one-year warranty period for all products sold.

TotalOtherStaff bonus

and welfareAmounts in ¤

At 31 December 2006 157,895 51,984 0 209,879

Additions 238,035 189,148 160,000 587,183

Utilised (86,306) (51,984) 0 (138,290)

Exchange differences (3,792) 0 0 (3,792)

At 31 December 2007 305,832 189,148 160,000 654,980

Maintenance/warranties

Current liabilities

Advance from customers 2,748,881 14,550

Accrued expenses and provisions 1,005,470 457,272

VAT payable 422,187 148,434

Other tax payables 6,361 2,186

Other payables 450,292 5,437,167

4,633,191 6,059,610

Trade payables 1,234,507 443,566

Income tax payable 39,931 809,823

5,907,629 7,312,999


88–89

Staff bonus and welfare fund: in 2007, the subsidiary company converted to become

a Foreign Investment Company. Pursuant to the Foreign Investment Company Laws

of the the PRC and decisions of the Board of Directors of the subsidiary company, 1%

of the profit after tax was accrued as a the staff bonus and welfare fund. The fund can

only be used for staff public welfare.

16. Income tax

major components of income tax expenses

The major components of income tax expenses are as follows:

The reconciliation of tax expenses is as follows:

Earnings before taxes 19,516,797 11,868,502

Average overall tax rate 40.0% 33.0%

Expected income tax 7,806,719 3,916,606

Foreign tax rate differential (7,436,784) 0

Recongition and measurement of deferred tax assets 118,428 0

Other terms (29,934) (69,986)

Actual total tax expense 458,428 3,846,620

Group tax rate 2.3% 32.4%


Current income tax 340,000 3,898,536

Deferred income tax induced by time difference 0 (72,173)

Deferred income tax induced by tax rate reduction 118,428 20,257

Income tax recognised in profit and loss 458,428 3,846,620



Deferred income tax relates to the following:

applicable tax rate

In 2007 the applicable group tax rate is based on the German Tax Laws for a corporate

entity. The tax rate amounts to 40%. Because of ZhongDe AG’s foundation in 2007

in the prior year the lower tax rate at 33% resulting from the local Chinese tax

regulations had been applicable.

17. Employee benefits

Average number of employees of the Group

The payroll costs of these employees are as follows:

All remunerations paid to researchers are expensed when incurred.

Wages and salaries 665,699 550,044

Social security costs 69,260 37,329

Welfare 62,227 34,914

Additions to employee welfare and bonus fund 189,148 51,984

986,334 674,272


Management and administration 45 29

Research and development 22 19

Manufacture 92 85

Sales 52 39

211 172

20062007

Allowance for bad and doubtful debts 0 84,192

Provision for warranty 0 38,687

Losses carried forward 360,000 0

360,000 122,879


90–91

retirement benefit plans

The eligible employees of the Group, who are citizens of the PRC, are members of

a state-managed retirement benefit scheme operated by the local government. The

Group is required to contribute a certain percentage of payroll costs to the retirement

benefit scheme to fund the benefits. The only obligation of the Group with respect to

the scheme is to make the specified contributions.

18. Commitments and contingencies

operating lease commitments

The Group leases various factories and offices under non-cancellable operating lease

agreements. The leases have varying terms and renewal rights. There are no restric-

tions placed on the Group by entering into these leases. The operating lease payment

recognised as an expense in the income statement in every financial year is as

follows:

Future minimum lease payments payable under non-cancellable operation leases as at

31 December 2007 are as follows:

contingent liabilities

At 31 December 2007 and the previous year the Group did not have any significant

contingent liabilities.

Lease payment recognised as expense 91,380 87,201


Not later than one year 21,987 92,437

Later than one year but not later than five years 280,282 49,035

Later than five years 0 0

302,269 141,472



19. Related party disclosures

An entity or individual is considered a related party of the Group for the purposes of

the financial statements if it possesses the ability, directly or indirectly, to control or

exercise significant influence over the operating and financial decision of the Group,

or vice versa, if it is subject to common control or common significant influence.

a. related party information

b. sales and purchase of goods

The following transactions took place between the Group and related party during the

financial year.

Both the sales of goods and rental of plant transactions with related parties were

based on market price.

Zefeng Chen CEO, majority shareholder

Fujian FengQuan Environmental Protection Limited Company attributable to Zefeng Chen

Fujian Development Zone Kaijie Environmental Protection Equipment Installation Limited Company attributable to Zefeng Chen

Fujian FengQuan Environmental Protection Investment Holding Limited Company attributable to Zefeng Chen

Beijing Zhongfukang Environmental Protection Technology Limited Company attributable to Zefeng Chen

Zhuji Fengquan Lipu Solid Waste Disposal Limited Company attributable to Zefeng Chen

Fujian Fengquan Boiler Limited Company attributable to Zefeng Chen

Name of related party Relationship

Sales of finished goods to a related party 0 2,397,698

Rental fee paid to a related party 81,904 95,606


92–93

c. due from/to related parties

20. Disclosure of financial instruments

The Group’s financial instruments at the closing-day comprise cash and liquid

resources, some short-term debtors and creditors, together with normal trade debtors

and creditors. The main risks which arise from these financial instruments relate to

liquidity, interest and exchange rates.

Due from related parties

trade 0 1,484,926

non-trade 7,919 4,864

7,919 1,489,790

Allowance for doubtful trade debts 0 (74,246)

7,919 1,415,544

Due to related parties

trade 0 0

non-trade 74,741 5,115,013

74,741 5,115,013



Disclosures IFRS 7:

Carrying amounts, amounts recognised, and fair values by category:

Cash and cash equivalents, trade and other receivables as well as amounts due from

related parties have short times to maturity (within 1 year). For this reason, their

carrying amounts at the reporting date approximate the fair values.

Trade and other financial liabilities generally have short times to maturity (within 1 year);

the values approximate the fair values.

Net gain/loss by category:

Interest from financial instruments is recognised in finance income and costs.

Amounts recognised in balance sheet

according to IAS 39 at

amortised cost

Carrying amount

31 Dec 2006

Amounts recognised in balance sheet

according to IAS 39 at

amortised cost

Carrying amount

31 Dec 2007

Category in accordance

with IAS 39Amounts in ¤

Trade receivables LaR 14,159,429 14,159,429 4,923,209 4,923,209

Other receivables and prepayments LaR 482,090 482,090 77,193 77,193

Amounts due from related parties LaR 7,919 7,919 1,415,544 1,415,544

Cash and cash equivalents LaR 83,827,323 83,827,323 9,198,384 9,198,384

Short-term loans FlAC 0 0 680,980 680,980

Trade payables FlAC 1,234,507 1,234,507 443,566 443,566

Other payables FlAC 450,292 450,292 322,154 322,154

Amounts due to related parties FlAC 74,741 74,741 5,115,013 5,115,013

Of which: aggregated by category in accordance with IAS 39

Cash and receivables LaR 98,476,761 98,476,761 15,614,330 15,614,330

Financial liabilities measured at amortized cost FLAC 1,759,540 1,759,540 6,561,713 6,561,713

Cash and receivables 933,073 933,073 16,231

Financial liabilities measured at amortised cost 28,186 28,186 50,318

904,887 904,887 (34,087)

Amounts in ¤ 20062007From interest

94–95

21. Financial risks management objectives and policies

The Group is exposed to interest rate and other market risks arising in the normal

course of business. The Group does not hold or issue derivative financial instruments

for trading purposes or to hedge against fluctuations, if any, in interest rates and

foreign exchange rates.

i. credit risk

Credit risk refers to the risk that a counter party will default on its contractual

obligations resulting in a loss to the Group. The Group has adopted the policy of only

dealing with creditworthy counterparties and monitors their balances.

The Group’s credit risk is primarily attributable to its trade and other receivables.

Cash is placed with creditworthy financial institutions. The trade and other

receivables presented in the balance sheet are net of an allowance for doubtful

receivables, estimated by management based on current economic conditions.

The carrying amount of financial assets recorded in the financial statements net of

any allowance for doubtful receivables, represents the Group’s maximum exposure to

credit risk.

ii. interest rate risk

Interest rate risk arises from the potential changes in interest rates that may have an

adverse effect on the Group in the current reporting period and in future years.

Other than the bank deposits and borrowings, the Group has no other significant

interest-bearing assets and liabilities. Its interest-bearing assets and liabilities are

mainly current bank deposits and loans from banks and unrelated parties. The

majority of the Group’s income and operating cash flow is independent of changes

in market interest rates. The Group’s policy is to secure all of its borrowings at fixed

borrowing rates.


iii. foreign currency risk

Foreign exchange risk refers to the risk that movement in foreign currency exchange

rates against the Group’s functional or reporting currency will affect the Group’s

financial results and cash flows. The majority of the Group’s transactions are in RMB,

and all of the Group’s interest bearing financial assets and liabilities are in RMB.

iv. liquidity risk

Liquidity risk arises from the possibility that the Group is unable to meet its

obligations towards other counterparties. The Group monitors and maintains a level

of cash and cash equivalents deemed adequate by the management to finance the

Group’s operations and mitigate the effects of fluctuations in cash flows.

v. fair values

The carrying amounts of the financial assets and financial liabilities in the financial

statements approximate their fair values.

22. Additional comments on capital management

The capital management of ZhongDe Group is based on monitoring equity and

liabilities and the investments based on its current high liquidity.

In order to have a sound basis to do so the management initiated the IPO in mid 2007

to raise the necessary funds. ZhongDe Group intends to concentrate on the municipal

waste incinerator market and expand its position in the market and techno logy in this

area. ZhongDe Group also intends to operate waste incinerator plants for and with

municipalities and as by-products to produce and market its own steam, hot water

and bricks as well as electricity through the operation of such plants (so called

BT/BOT projects). Thus, the target of the investment policy is to maintain the strong

and profitable growth path in the business in order to create shareholder value.

The investments are based on relating return on investment calculations which are

updated at regular intervals.

96–97

The current liquidity not yet used for such investments are kept in well-known banks

and should yield a high interest rate as long as this money has not yet been invested.

23. Members of the Management and Supervisory Board

management board of the parent company

Mr. Zefeng Chen, CEO

Merchant, Fuzhou (PRC), initially appointed on 14 June 2007

Mrs. Na Lin, CFO

Merchant, Fuzhou (PRC), initially appointed on 14 June 2007

supervisory board of the parent company

Mr. Hans-Joachim Zwarg, Chairman

Merchant, Sierksdorf, Germany, initially appointed on 18 June 2007

Mr. Joachim Ronge, Deputy Chairman

Merchant, Münster, Germany, initially appointed on 18 June 2007

Mr. Dr Hao Quan

Scientist and engineer for environmental technology, Beijing (PRC),

initially appointed on 18 June 2007

Mr. Simon James Eckersley

Merchant, Beijing (PRC), resignation on 17 June 2007

Mrs. Lu Li

Merchant, Shanghai (PRC), resignation on 17 June 2007

Mr. Kaizhan Liao

Merchant, Shangjie, Fuzhou (PRC), resignation on 17 June 2007


Mr. Hans-Joachim Zwarg is a member of the supervisory boards of

HanseYachts AG, Greifswald, Germany, and

Asian Bamboo AG, Hamburg, Germany (Chairman)

24. Remuneration of the Management and Supervisory Board

management board

The following remunerations have been paid: k€17 to Zefeng Chen (fixed salary).

He was not entitled to any other benefits especially with regard to the performance

of the Company.

Mrs. Na Lin was paid k€12.

supervisory board (fixed remunerations)

Hans-Joachim Zwarg: k€39 (incl. 19% VAT)

Joachim Ronge: k€21 (incl. 19% VAT)

Hao Quan: k€9

25. Declaration of compliance with the German Corporate Governance Code

The Company intends to largely comply with the obligation, which arises upon

commencement of its stock exchange listing, to issue and publish a declaration in

compliance with section 161 German Stock Corporation Act (AktG), and to make it

available to the shareholders at all times. The Management Board and Supervisory

Board of the Company identify with the goals of the Code to foster responsible and

transparent corporate management and control, oriented to a sustained increase

in company value. The Company, therefore, intends to document in its declaration

98–99

pursuant to section 161 German Stock Corporation Act (AktG) that it is largely

following the recommendations and suggestions of the Code. Details will be agreed

between the Management Board and the Supervisory Board. However, the Company

does not intend to follow the noncompetition obligation for the members of the

Management Board stated in No. 4.3.1 of the Code. In accordance with section 88

para. 1 of German Stock Corporation Act (AktG) the Supervisory Board has granted

its approval to Mr. Zefeng Chen to remain in his position as chairman and non-

executive director of Fujian FengQuan Environmental Protection Co. Ltd. and as

major shareholder of Fujian FengQuan Environmental Protection Co. Ltd.

ZhongDe Waste Technology AG will complete its declaration of compliance by

6 July 2008.

26. Shareholdings in ZhongDe Waste Technology AG

In accordance with the provisions of the German Securities Trading Act (WpHG),

ZhongDe Waste Technology AG received the following notifications by shareholders

of the Company by the date of the preparation of the balance sheet:

5 july 2007

Mr. Zefeng Chen, Fuzhou, Fujian, China gave us notice pursuant to section 21 para. 1a

WpHG that his voting rights in ZhongDe Waste Technology AG as at 5 July 2007

(date of the first admission of the shares/Datum der erstmaligen Zulassung der Aktien)

amounted to 52.33% (6,803,200 voting rights).

As at 12 July 2007, Mr. Zefeng Chen sold 200,000 shares. Therefore his stake since

then is 50.79 % (= 6,603,200 shares).


10 july 2007

9998 Holding Ltd., Apia, Samoa, China, gave us notice pursuant to section 21 para. 1

WpHG that their voting rights in ZhongDe Waste Technology AG as at 10 July 2007 fell

short of the threshold of 10% and at this date amounted to 8.24% (1,072,284 voting

rights).

Hao Capital China Fund LP, George Town, Grand Cayman, Cayman Islands, gave us

notice pursuant to section 21 Para. 1 WpHG that their voting rights in ZhongDe Waste

Technology AG as at 10 July 2007 fell short of the threshold of 10% and at this date

amounted to 8.24% (1,072,284 voting rights).

8.24% of the voting rights (1,072,284 voting rights) were attributable to them in

accordance with section 22 para. 1 sent. 1 no. 1 of the WpHG.

The attributed voting rights were attributed by 9998 Holding Ltd., Apia, Samoa, China,

the voting rights of which exceed directly 3%.

Dragonup Enterprises Ltd., Road Town, Tortola, British Virgin Islands, gave us notice

pursuant to section 21 para. 1 WpHG that their voting rights in ZhongDe Waste


amounted to 2.39% (311,309 voting rights).

Kohei Watanabe, Fuzhou, China, gave us notice pursuant to section 21 para. 1 WpHG

that his voting rights in ZhongDe Waste Technology AG as at 10 July 2007 fell short of

the threshold of 3% and at this date amounted to 2.39% (311,309 voting rights).

2.39% of the voting rights 311,309 voting rights) were attributable to him in


The attributed voting rights were attributed by Dragonup Enterprises Ltd., Road Town,

Tortola, British Virgin Islands.

Linch Investments Ltd., Road Town, Tortola, British Virgin Islands, gave notice

pursuant to section 21 para. 1 WpHG that their voting rights in ZhongDe Waste



100–101

Synergy Investment Group Ltd., Road Town, Tortola, British Virgin Islands, gave us

notice pursuant to section 21 para. 1 WpHG that their voting rights in ZhongDe Waste



Li Lu, China, gave us notice pursuant to section 21 para. 1 WpHG that her voting

rights in ZhongDe Waste Technology AG as at 10 July 2007 fell short of the threshold

of 3% and at this date amounted to 2.12% (276,716 voting rights).

2.12% of the voting rights (276,716 voting rights) were attributable to her in


The attributed voting rights are attributed by Synergy Investment Group Ltd., Road

Town, Tortola, British Virgin Islands.”

Noonday Capital Partners, L.L.C., Wilmington, United States of America gave us

notice pursuant to section 21 para. 1 of the German Securities Trading Act (WpHG)

that their voting rights in ZhongDe Waste Technology AG, Hamburg, Germany, as at

16 January 2008 exceeded the threshold of 3% of the voting rights. The aforemen-

tioned person had at that date 398,119 voting rights of the total of 13,000,000 voting

rights in ZhongDe Waste Technology AG; this equals a share of 3.06% of all voting

rights.

3.01% of the voting rights (391,719 voting rights) are attributed to them pursuant to

section 22 para. 2 WpHG.

Farallon Capital Offshore Investors II, L.P., George Town, British West Indies gave us

notice pursuant to section 21 para. 1 of the German Securities Trading Act (WpHG)

that their voting rights in ZhongDe Waste Technology AG, Hamburg, Germany, as at

16 January 2008 exceeded the threshold of 3% of the voting rights. The aforemen-

tioned person held at that date 398,119 voting rights of the total of 13,000,000 voting

rights in ZhongDe Waste Technology AG; this equals a share of 3.06% of all voting

rights.




Tinicum Partners, L.P., Albany, United States of America gave us notice pursuant to

section 21 para. 1 of the German Securities Trading Act (WpHG) that their voting

rights in ZhongDe Waste Technology AG, Hamburg, Germany, as at 16 January 2008

exceeded the threshold of 3% of the voting rights. The aforementioned person held

at that date 398,119 voting rights of the total of 13,000,000 voting rights in ZhongDe

Waste Technology AG; this equals a share of 3.06% of all voting rights.



Farallon Capital Institutional Partners III, L.P., Wilmington, United States of America

gave us notice pursuant to section 21 para. 1 of the German Securities Trading

Act (WpHG) that their voting rights in ZhongDe Waste Technology AG, Hamburg,

Germany, as at 16 January 2008 exceeded the threshold of 3% of the voting rights.

The aforementioned person held at that date 398,119 voting rights of the total of

13,000,000 voting rights in ZhongDe Waste Technology AG; this equals a share of

3.06% of all voting rights.



Farallon Capital Institutional Partners II, L.P., Sacramento, United States of America









Farallon Capital Institutional Partners, L.P., Sacramento, United States of America




102–103






Farallon Capital Partners, L.P., Sacramento, United States of America gave us notice

pursuant to section 21 para. 1 of the German Securities Trading Act (WpHG) that their

voting rights in ZhongDe Waste Technology AG, Hamburg, Germany, as at 16 January

2008 exceeded the threshold of 3% of the voting rights. The aforementioned person

held at that date 398,119 voting rights of the total of 13,000,000 voting rights in

ZhongDe Waste Technology AG; this equals a share of 3.06% of all voting rights.



Noonday Offshore Inc., George Town, British West Indies gave us notice pursuant

to section 21 para. 1 of the German Securities Trading Act (WpHG) that their voting

rights in ZhongDe Waste Technology AG, Hamburg, Germany, as at 16 January 2008

exceeded the threshold of 3% of the voting rights. The aforementioned person held

at that date 398,119 voting rights of the total of 13,000,000 voting rights in ZhongDe

Waste Technology AG; this equals a share of 3.06% of all voting rights.



Farallon Capital Offshore Investors, Inc., Tortola, British Virgin Islands gave us notice

pursuant to section 21 para. 1 of the German Securities Trading Act (WpHG) that their

voting rights in ZhongDe Waste Technology AG, Hamburg, Germany as at 16 January

2008 exceeded the threshold of 3% of the voting rights. The aforementioned person

held at that date 398,119 voting rights of the total of 13,000,000 voting rights in

ZhongDe Waste Technology AG; this equals a share of 3.06% of all voting rights.




The following persons gave us notice pursuant to section 21 para. 1 of the German

Securities Trading Act (WpHG) that their voting rights in ZhongDe Waste Technology

AG, Hamburg, Germany, as at 16 January 2008 exceeded the threshold of 3% of the

voting rights:

1. Thomas F. Steyer, United States of America

2. Noonday Capital L.L.C., Wilmington, United States of America

3. Noonday Asset Management L.P. Wilmington, United States of America

4. Noonday Asset Management Asia Pte. Ltd., Singapore, Singapore

5. Noonday Global Management Ltd., George Town, British West Indies

6. Farallon Capital Management L.L.C., Wilmington, United States of America, and

7. Farallon Partners L.L.C., Wilmington, United States of America.

On 16 January 2008, the Reporting Persons held 398,119 voting rights of the total of

13,000,000 voting rights in ZhongDe Waste Technology AG, Hamburg, Germany; this

equals a share of 3.06% of all voting rights.

3.06% of these voting rights (398,119 voting rights) are attributed to Thomas F. Steyer

pursuant to section 22 para. 2 WpHG; thereof 1.49 % (193,200 voting rights) are also

attributed pursuant to section 22 para. 1 sentence 1 no. 1 WpHG and 1.58% (204,919

voting rights) also pursuant to section 22 para 1 sentence 1 no. 6 WpHG in connection

with section. 22 para. 1 sentence 2 WphG.

3.06% of the voting rights (398,119 voting rights) are attributed to Noonday Capital

L.L.C. pursuant to section 22 para. 1 sentence 1 no. 6 WpHG in connection with

section 22 para. 1 sentence 2 WpHG.

3.06% of the voting rights (398,119 voting rights) are attributed to Noonday Asset

Management L.P. pursuant to section 22 para. 1 sentence 1 no. 6 WpHG in connection

with section 22 para. 1 sentence 2 WpHG.

3.06% of the voting rights (398,119 voting rights) are attributed to Noonday Asset

Management Asia Pte. Ltd. pursuant to section 22 para. 1 sentence 1 no. 6 WpHG.

3.06% of the voting rights (398,119 voting rights) are attributed to Noonday Global

Management Ltd. pursuant to section 22 para. 1 sentence 1 no. 6 WpHG.

104–105

1.58% (204,919 voting rights) are attributed to Farallon Capital Management L.L.C.

pursuant to section 22 para. 1 sentence 1 no. 6 WpHG and 1.49% of the voting rights

(193,200 voting rights) are attributed pursuant to section 22 para. 2 WpHG.

3.06% of the voting rights (398,119 voting rights) are attributed to Farallon Partners

L.L.C. pursuant to section 22 para. 2 WpHG and 1.49% of the voting rights (193,200

voting rights) are also attributed pursuant to section 22 para. 1 sentence 1 no. 1 WpHG

as well as pursuant to section 22 para. 1 sentence 1 no. 6 WpHG.

27. Audit

BDO Deutsche Warentreuhand AG has been elected as the auditors of ZhongDe Waste

Technology AG and the Group for the fiscal year 2007. The following table gives an

overview of the fees of the Group auditors, BDO Deutsche Warentreuhand AG

Wirtschaftsprüfungsgesellschaft, recognised as expenses (including out of pocket

expenses and VAT, if any) in the business year:

28. Proposal on the utilisation of net retained profits

At the Annual General Meeting, the Management Board and Supervisory Board will

propose that, based on the net profit of €3,486,204.03 of ZhongDe Waste Technology

AG as reflected in the German statements, €1,950,000.00 (€0.15 per share) will be

distributed and €1,536,204.03 will be carried forward to 2008.

Audit 2007 100

Other assurance services 312

Other services (mainly due diligence and related reimbursement of insurances) 323

Amounts in k¤


29. Notes to the cash flow statement

The cash flow statement has been prepared in accordance with IFRS 7 and is classified

by net cash flows from operating, investing and financing activities. Net cash flow

from operating activities is presented using the indirect method, while net cash flows

from investing and financing activities are presented using the direct method. Cash

funds are composed of cash and cash equivalents such as short-term deposits.

30. Authorisation of financial statements

These financial statements were authorised for issuance in accordance with a resolution

of the Board of Directors of the Group dated on 28 April 2008.

31. Events after balance sheet date

There have been no events between 31 December 2007 and 28 April 2008 that would

require an adjustment to the carrying amount of the assets and liabilities or that would

need to be disclosed under this heading.


On behalf of the Management Board

Zefeng Chen Na Lin

Chairman of the CFO


106–107

To the best of our knowledge, and in accordance with the applicable reporting principles,

the consolidated financial statements give a true and fair view of the assets, liabilities,

financial position and profit or loss of the group. The group management report includes

a fair review of the development and performance of the business and the position of the

group, together with a description of the principal opportunities and risks associated

with its expected development.


The Management Board

Zefeng Chen Na Lin

Chairman of the CFO


Responsibility statement


108–109

[110] Financial calendar[111] Contact information[115] Imprint (cover)

additional information

Financial calendar

29 april 2008Annual financial statement 2007

30 mai 2008Interim report on the first quarter 2008

22 july 2008Annual General Meeting

30 august 2008Interim report on the first half of 2008

10 to 12 november 2008German Equity Forum of Deutsche Börse, Frankfurt/Main

30 november 2008Interim report on the third quarter 2008

110–111Contact information

zhongde waste technology agcornelia dieker

Administration Manager

Stadthausbrücke 1–3

D-20355 Hamburg

Phone +49 (40) 37644 745

Fax +49 (40) 37644 500

Email: [email protected]

www.zhongdetech.com

zhongde waste technology aggeorge lee

Head of IR

Suite 607, Ocean Centre,

No. 5, Canton Road, T.S.T.,

Hong Kong

Phone +852 (2111) 5222

Fax +852 (2947) 7590


www.zhongdetech.com

citigate dewe rogerson (investor relations consultant)gabriela sexton

Goethestrasse 26–28

D-60313 Frankfurt/Main

Phone +49 (69) 90 500 140

Fax +49 (69) 90 500 102


www.citigatedr.de

downloadCopies of this Annual Report can be

downloaded via internet

german version

www.zhongdetech.de/investor_relations/

publikationen.html

english version

www.zhongdetech.com/investor_relations/

publikationen.html

Imprint

Published by

zhongde waste technology agD-20355 Hamburg

Phone +49 (0) 40 37644 745

Fax +49 (0) 40 37644 500

www.zhongdetech.com

counsel, supervision & coordination

Citigate Dewe Rogerson GmbH, Frankfurt/Main

copy editing

englishtalk, Stuttgart

design concept and layout

Lekkerwerken, Wiesbaden

proofreading

textas, Wiesbaden

prepress

Studio Oberländer, Frankfurt/Main

printing

Frotscher Druck, Darmstadt

ZhongDe Waste Technology AG

Annual Report 2007

Stadthausbrücke 1–3

D-20355 Hamburg

Phone +49 (0) 40 37644 745

Fax +49 (0) 40 37644 500

www.zhongdetech.com Zhon

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zhongde waste technology ag annual report 2007

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